US SEC Halts Ethereum Investigation, Likely Avoiding ‘Embarrassing’ Court Case

The US SEC has announced a move to officially halt the investigations to ascertain whether Ether (ETH) is a security. 

The move to terminate the investigation prompts the crypto community to question the motive behind the withdrawal. Is the fight to ascertain Ether’s (ETH) security status over?  

The motive to drop the investigation perhaps arises from the realization that the US Securities and Exchange Commission (SEC) may not have a solid case to prove Ether’s (ETH) security classification. 

On Wednesday, June 19, the US securities regulator announced a move to close the investigation into Ether’s classification as security officially. 

Consensys attorney Laura Brookover hailed the move as it ended the Commission protest, which termed Ether as security. The lawyer added that it appears the Gensler-chaired Commission unwillingly dropped the investigation. 

Brookover considers dropping the investigation a response to the intense push to forego the subpoenas served to Consensys. Lifting them was inevitable, given the recent ETH ETF rule change to approve 194-bs predicated on Ether as a commodity. 

Consensys had, in a letter sent late last month, indicated that the approval of spot Ether ETFs implied that SEC updated its position, classifying ETH as a commodity. SEC has yet to confirm or publicly dispute the thesis advanced by Consensys. 

Scholar Downplays ETF Guarantees Ether Classification as Commodity

The University of Arkansas law scholar Carol Goforth indicated that SEC approving spot Ether ETF hardly implies commodity status. The professor added that ETF approval does not change the security status of the underlying asset. 

Professor Goforth noted the existence of several commodity-based ETFs with the underlying asset as security. 

The likelihood of spot Ether ETF approval while the SEC avoids the outright classification of ETH as security begs the question of why the Commission halted the investigation. 

Goforth offers a possible explanation for the retreat as an indication of uncertainty that the SEC can provide a convincing argument in court that Ether is security.

She considers that SEC attorneys acknowledged the difficulty in proving the security classification under the Howey test for investment contracts. The scholar observed that Ether is a widely held and traded asset that may prove difficult to establish the influence of market forces on profitability. 

Goforth highlights that the securities watchdog aimed to avoid a discomfiting defeat, as witnessed during Grayscale Bitcoin Trust last year. Also, SEC officials have made statements regarding Ether classification that have become embarrassing to state otherwise. 

A former executive at SEC, William Hinman, had indicated that Ethereum lacked security classification. He considered decentralization a critical input in ascertaining the security and commodity status. 

The Ethereum network and operations appeared sufficiently decentralized, indicating that investors hardly expected a single entity to undertake the administrative efforts. 

The speech by the former SEC director illustrated that Ethereum’s classification as non-security was apparent, thereby contrasting the ongoing scrutiny. It proved that the SEC needs to consistently offer guidance on applying the Howey test to the crypto and Ethereum. 

Endless Battle for US Clarity on Crypto Regulation

The crypto community hails the termination of the investigation by the SEC as a positive development for the network. Goforth cites the letter pronouncement that indicates that the SEC will discontinue the investigation momentarily, though it is not a final determination. 

The legal scholar warns against early celebrating the crypto industry win that the uncertainties linger over the classification. 

Consensys echoed Goforth, indicating that the momentous victory hardly offers the cure-all solution desired by blockchain developers, industry participants, and technology providers concerned by the unlawful and aggressive enforcement regime targeting crypto space. 

While the Consensys has won the battle, the pursuit of clarity in crypto regulation continues. In particular, SEC is investigating staking an element considered core to the Ethereum ecosystem. 

US crypto exchange Kraken is among the victims of SEC enforcement as it agreed to a $30 million settlement. It halted the staking services following the conclusion by the Commission that staking-as-a-service amounted to security.

Goforth considers staking a complex element that the Commission has regarded as an investment contract. She believes that the ongoing struggle for regulatory clarity will feature multiple challenges.  

The recent developments could offer Ethereum advocates a momentous relief from the uncertainties surrounding Ether’s classification. Such offers hope in the tumultuous regulatory landscape. 

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