According to U.S. companies that have been subpoenaed in relation to an investigation, the Securities and Exchange Commission (SEC) is actively engaged in a legal battle to categorize Ethereum, the second most widely used cryptocurrency, as a security. This development deals a significant blow to the crypto industry’s expectations that the SEC would grant approval for an Ethereum ETF, as it did for a number of Bitcoin ETFs in January. This news comes as a disappointment to BlackRock and other applicants who were hoping for a positive outcome.
The investigation conducted by the SEC regarding Ethereum requires companies to provide any relevant documents and financial records related to their interactions with the Ethereum Foundation. This non-profit organization is responsible for managing and advancing the development of the Ethereum blockchain.
Based on information provided by an individual employed at a company, the Securities and Exchange Commission (SEC) initiated an investigation into the Swiss-based Ethereum Foundation shortly after the blockchain transitioned to a new governance model called “proof-of-stake” in September 2022. Another individual from a different company, who also received a subpoena, described it as specific and directed solely towards the Ethereum Foundation. This individual mentioned receiving the subpoena within the past few weeks.
According to sources from three different companies who are familiar with the subpoenas, the proof-of-stake event resulted in the blockchain transitioning from Bitcoin’s energy-intensive model to one that depends on a trusted network of validators. This shift also gave the SEC an opportunity to potentially categorize Ethereum as a security. The individuals, who have requested anonymity due to concerns of retribution from the SEC’s chair, Gary Gensler, described him as “vindictive.”
Coindesk reported on Wednesday that there is an ongoing investigation into the Ethereum Foundation. The evidence of this probe was found in an update to the group’s Github code repository, suggesting that it is being conducted by an unidentified state agency.
In response to a request for comment from Fortune, the agency stated that it does not provide any information regarding the presence or absence of a potential investigation.
Ethereum faces pressure to be classified as a security. The issuance of subpoenas coincides with the SEC and the Biden Administration’s determined efforts to regulate the crypto industry, which they perceive as lacking legal structure. However, the uncertain legal status of cryptocurrencies has posed challenges to this campaign, resulting in numerous legal disputes questioning the SEC’s authority over the industry.
The Ethereum Foundation, a non-profit organization based in Switzerland that plays a central role in the Ethereum ecosystem, is currently being questioned by an undisclosed “state authority,” as stated on the organization’s GitHub repository. This confidential inquiry is taking place amidst significant technological advancements within Ethereum and a potential turning point for its native asset, ETH. Several American investment firms are looking to introduce ETH as an exchange-traded fund, but the Securities and Exchange Commission (SEC) has been slow in approving such efforts, despite recently approving a number of Bitcoin ETFs.
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