The U.S. Securities and Exchange Commission (SEC) has reportedly initiated an investigation into the Ethereum Foundation and entities associated with the nonprofit organization, as revealed by a recent report from Fortune on Wednesday. This development has sent ripples of concern throughout the cryptocurrency community, particularly among enthusiasts who have been eagerly anticipating the approval of spot Ether exchange-traded funds (ETFs). These ETFs would simplify the process for investors to gain exposure to Ethereum without the need to directly hold the cryptocurrency themselves.
The investigation came to light after observations made by CoinDesk, which noted a disclosure on the Ethereum Foundation’s Github page regarding scrutiny by an undisclosed “state authority.” However, the SEC declined to comment on the existence or absence of an investigation when approached by Gizmodo via email on Wednesday, maintaining its standard policy of refraining from confirming or denying ongoing investigations.
According to insights from individuals familiar with the matter as reported by Fortune, the objective of the SEC’s purported investigation is to determine whether Ethereum should be categorized as a security. This classification could have significant implications for the regulatory oversight and treatment of Ethereum within the financial ecosystem.
Gary Gensler, the chair of the SEC, has previously expressed his views on the classification of cryptocurrencies. While he has stated that Bitcoin does not meet the criteria to be classified as a security and should be regarded as a commodity, he has suggested that the majority of other cryptocurrencies may indeed fall under the definition of securities. Gensler’s stance underscores the regulatory uncertainty surrounding cryptocurrencies and their varying legal classifications, adding further complexity to the evolving regulatory landscape in the crypto industry.
The Securities and Exchange Commission’s (SEC) investigation into the Ethereum Foundation, as reported by Fortune, appears to have been triggered by Ethereum’s transition to a new governance model known as “proof-of-stake” in September 2022. This shift in the blockchain’s operating model marked a departure from the energy-intensive protocol utilized by Bitcoin, opting instead for a system reliant on a network of trusted validators. According to sources within multiple companies familiar with the matter, this transition provided the SEC with a pretext to explore the classification of Ethereum as a security.
If Ethereum were to be classified as a security, it would have significant implications for both the cryptocurrency itself and the exchanges facilitating its trading. Such classification would subject Ethereum and its associated trading platforms to stricter regulatory oversight and enforcement by the SEC. This heightened regulatory scrutiny could potentially impact Ethereum’s market dynamics and investor sentiment.
In response to the news of the SEC’s investigation, Ethereum’s price has experienced a slight decline, falling approximately 14% over the past five days. However, it’s important to note that despite this recent downturn, Ethereum has still seen considerable growth, with its price up by 98% over the past six months. Late September saw Ethereum trading at around $1,600 per coin.
Ethereum was conceptualized and developed in 2015 by programmer Vitalik Buterin, who was motivated by concerns over the centralization of services and the limitations of centralized platforms. Buterin’s frustration with the degradation of his favorite World of Warcraft character’s abilities served as a catalyst for his realization of the potential drawbacks of centralized systems, inspiring him to create Ethereum as a decentralized cryptocurrency.
As the creator of Ethereum, Vitalik Buterin has garnered considerable wealth, with Forbes estimating his net worth to be around $400 million. While this figure represents a significant sum, it reflects a decrease from his estimated net worth of approximately $1.4 billion in 2021.