Ethereum received celebratory support in otherwise subdued markets after it was announced late yesterday that the Securities and Exchange Commission had closed its “Ethereum 2.0” investigation, according to Consensys.
Consensys sued the SEC in April. In its complaint, the company said the SEC sought to “regulate ETH as a security even though ETH bears none of the attributes of a security — and even though the SEC has previously told the world that ETH is not a security and does not fall under the SEC’s statutory jurisdiction,” it said in 34 pages of complaints.
It followed reports in March that the Ethereum Foundation was being investigated by an unnamed “state agency”. But now the investigation is called off.
“This means the SEC will not pursue charges that ETH sales are securities transactions,” the Ethereum software company tweeted last night.
At the time of writing, the price of Ethereum is just above $3,500 after rising 3.1% in the last 24 hours. That puts the world’s second-largest cryptocurrency by market capitalization 13.8% higher than it was a month ago, according to CoinGecko data.
Spot trading volume in the last 24 hours reached $21 billion, according to CoinGecko. The only time ETH trading volume was higher in the past month was on May 24th, the day after the SEC approved the Ethereum ETF for trading.
It’s not just ETH that’s seen a storm.
Many coins closely tied to Ethereum, such as Liquid Exchange Protocol, Lido DAO (LDO) governance token, Ethereum Name Service (ENS) decentralized domain name service (ENS), and Ethereum’s fourth-largest protocol producer DeFi (MKR) posted double-digit gains. in the past day.
But ending the SEC investigation isn’t enough to repair the damage to the rest of the industry, Coinbase’s general counsel Paul Grewal argued on Twitter.
“But what about the ecosystem? What about the promotional statement? What about the efforts of others,” he wrote. “How do you explain this decision and other projects tarnished by the SEC’s broken Howey analysis?”
For years, the SEC has used its so-called Howey test to determine whether an asset meets the definition of a security and is therefore required to be registered with the SEC. But that drew a lot of backlash from SEC commissioner Hester Peirce, law professors and lawmakers — all of whom argued that it was an outdated and inappropriate test for cryptocurrencies.
Things got even more daunting when SEC Chairman Gary Gensler himself specifically indicated that proof of stake assets could qualify as securities under the Howey test – right after the Ethereum merger.
This is why the subject of the SEC investigation has been referred to as “Ethereum 2.0”. Ethereum became a proof-of-stake network after the September 2022 merger, which marked the transition from proof of work like Bitcoin to a proof-of-stake consensus mechanism.
Since then, there has been an ongoing list of assets that have been listed in lawsuits filed by the SEC accusing the companies of trading in unregistered securities. Analysts have even suggested that proof of work activity is what has kept some coins like Litecoin (LTC) and Dogecoin (DOGE) out of the regulator’s sights.
In April 2023, allegations against Bittrex alleged that OMG Network (OMG), Dash (DASH), Monolith (TKN), Naga (NGC), Real Estate Protocol (IHT) and Algorand (ALGO) were all securities.
A few months later, the SEC said in its lawsuit against crypto exchange Coinbase that several assets were unregistered securities, including: Binance’s BNB token, the exchange’s now-defunct stablecoin, BUSD, and 10 other tokens: Solana (SOL), Cardano ( ADA), Polygon (MATIC), Filecoin (FIL), Cosmos Hub (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS) and COTI (COTI).
Coins being named in lawsuits – even before it was decided whether the allegations were true – were also enough to get some of them removed from cryptocurrency trading platforms.