Ethereum vs SEC: A pivotal legal battle for the crypto industry?

We recently learned that the witch hunt launched several months ago by the Securities and Exchange Commission (SEC) now affects Ethereum. The financial regulator has even cited several companies as part of what appears to be yet another relentless attempt to regulate the crypto industry. In a recent analysis, we explained to you that the SEC has as much to lose in this matter as Ethereum. But ultimately, while the latter arouses both fears and speculation, what should we expect in concrete terms? This is the question that we will try to answer in this new analysis of attempts to regulate Ethereum by the American financial regulator.

What to remember from the SEC's position on the issue

Since Gary Gensler has led the SEC, the institution has gradually taken an increasingly extensive regulatory trajectory regarding cryptos. This, with particular emphasis on platforms based on the proof-of-stake model such as Ethereum.

At the same time, the approval by the Commodities and Futures Trading Commission (CFTC) of ETFs on futures contracts on ether, the crypto of Ethereum, complicates the regulatory landscape of the platform. Because although the CFTC has classified ether as a commodity, the SEC's ongoing review of Ethereum's classification is causing speculation.

You should know that according to Gary Gensler, the fact of Ethereum having transitioned to the proof of stake mechanism would result in its categorization as a security. Particularly under the prism of securities regulations. This position takes on a whole new meaning when integrated into the current discussions surrounding the expected approval of Ethereum spot ETFs.

Are Gensler, and the SEC attempting a sleight of hand to deny approval of Ethereum Spot ETFs? What is certain is that the potential classification of Ethereum as a security could hamper the approval process for Ethereum ETFs. A prospect which could also raise questions regarding the CFTC's surveillance of the ether futures markets. Now that we know the position of the SEC and its leader in this matter, it is interesting to look at the opinion that the crypto industry has of it.

The SEC, engaged in a battle that it will lose against Ethereum?

It's basically what the crypto industry thinks of this alleged attempt at regulation of the Ethereum ecosystem. As proof, two behemoths of this industry have spoken out about this affair. They are Brad Garlinghouse, CEO of Ripple, and Paul Singh Grewal, lawyer and general counsel at Coinbase.

The former's opinion is very clear. “The SEC has fought with the industry and is losing badly in court. It is now battling other regulators like the CFTC, and falling behind its international counterparts. At what point will the SEC realize that it will lose the war against ETH like it lost against XRP? »believes the manager.

Paul Singh Grewal goes further by invoking a series of arguments that disqualify the SEC from any victory against crypto via Ethereum. For the lawyer, the SEC's position is simply untenable.

First, it highlights the widespread adoption and importance of ether within the crypto community. Millions of Americans have purchased ether since its creation in 2015, making crypto a cornerstone of the crypto landscape. Additionally, ether's role as a commodity rather than a security has been recognized by senior SEC officials. Particularly in statements by Hinman, former finance director of the SEC. But also by Gary Gensler himself long before he took charge of the SEC.

Furthermore, the consistency of the SEC's stance on ether over the years strengthens Grewal's defense. Indeed, despite the changes in direction, the SEC's position has remained unchanged, as parallels continue to be drawn between ether and bitcoin (BTC). Not to mention that in addition to being considered a commodity by the CFTC, ether is also viewed the same way by the federal courts.

The lawyer also demonstrates the relevance of the Howey test in determining the classification of ETH. He argues that cryptos, like ether, do not have ongoing contractual obligations tied to a commercial enterprise. Therefore, they do not meet the criteria of “investment contracts” or some “titles”. In fact, even if the Howey test were applied, the lawyer believes that ether would not meet its requirements, which would then confirm its status as a commodity.

“The SEC has no valid reason to deny ETH ETP applications. And we hope she doesn't try to invent one by questioning ether's long-established regulatory status, which the SEC has repeatedly approved. That's not how the law works. And Americans deserve better”concludes the lawyer.

A Crucial Regulatory Consideration on Ethereum Crypto

The departure from previous claims that Ethereum shares more characteristics with commodities than with securities introduces a crucial regulatory consideration. Particularly when it comes to ETFs.

Recently, the SEC decided to extend the deadline for ruling on Grayscale's Ethereum Futures Trust ETF until May 30. This choice is particularly important, as this extension highlights the complexity and scrutiny of Ethereum's regulatory status which, admittedly, is historically unclear.

So, if ether is classified as a security, it will be subject to stricter trading rules. These regulations could pose problems for investors and crypto exchanges, especially as they would lead to stricter compliance measures and operational adjustments. But that's not the most serious thing.

Indeed, one of the main concerns related to the potential reclassification of ether as security is the possibility of it being delisted from crypto exchanges. A prospect which would have considerable consequences, particularly in terms of liquidity, trading volumes and accessibility to investors. Additionally, projects built on the Ethereum blockchain would also face uncertainties and disruptions. Because a change in the regulatory status of Ethereum would directly influence their operational framework and their viability on the market. This battle is therefore potentially a pivotal phase for the crypto industry.

Conclusion

In short, we must remember that the legal battle between Ethereum and the SEC constitutes a pivotal moment for the crypto industry. Certainly, the SEC wants to regulate Ethereum by classifying it as a security. But industry reactions backed by strong defense call this approach into question. Indeed, influential figures in the crypto industry are highlighting the potential consequences of such a classification on the Ethereum ecosystem. Particularly with regard to ETFs, investors, and projects based on its blockchain. In any case, this battle could shape the future of crypto regulation by influencing the evolution of the sector in the years to come.