On June 19, the U.S. Securities and Exchange Commission (SEC) officially ended its probe into Ethereum 2.0 and no longer pursued charges against Ethereum sales as securities. According to Joseph Lubin, the Canadian-American businessman and founder of ConsenSys, the landmark decision could be a sign that regulatory hurdles may soon ease.
As the SEC has cleared the Ethereum case, the cryptocurrency industry eyes easing regulations.
“We are hopeful that the antagonism to crypto among some US regulators is starting to wane and that the national investor protection strategy will evolve from the current guerrilla tactics,” Lubin shared his thoughts about the SEC’s decision with FOX Business’ Eleanor Terrett.
The USA is Falling Behind
The closure of the investigation has removed uncertainty hanging over Ethereum over the past few months. The move follows the SEC’s recent approval of spot Ethereum ETFs, which suggests the regulator’s easing stance towards cryptocurrencies.
While Lubin welcomes this development, he believes it’s “not sufficient.” According to him, Consensys’ goal is a more structured regulatory system for cryptocurrencies. “There has to be a better way to regulate the market than through ambush,” he added. “…we are intent on achieving more legal clarity for all.”
According to FOX Business, the SEC’s investigation into Ethereum 2.0 (Ethereum under Proof-of-Stake era) had been ongoing since March 2023 under the leadership of Gurbir Grewal, Director of the SEC’s Division of Enforcement.
In late April, Consensys filed a lawsuit against the SEC to defend the Ethereum ecosystem and its product, MetaMask. Consensys argued that Ether, Ethereum’s native token, is a commodity, not a security, and that the SEC lacks the legal authority to regulate it as such.
Earlier this month, the entity reportedly sent a letter to the SEC to reiterate its arguments. This time, Consensys used the SEC’s recent approval of spot Ethereum ETFs as the point and asked the SEC to drop its probe into Ethereum 2.0.
Its effort was successful. However, the firm said it would still pursue its lawsuit against the securities commission to push for clear and fair regulations that protect investors.
The focus is now on MetaMask. Consensys claims that its MetaMask wallet software does not function as a broker, and therefore, it is not subject to SEC regulation.
Ongoing Lawsuits
While the SEC has retreated from Ethereum investigation, it is unlikely to abandon legal actions against other cryptocurrency entities. Yesterday, Kraken, another major exchange facing a lawsuit from the SEC, was present in court for its motion to dismiss the SEC’s enforcement action.
The SEC previously alleged that Kraken was offering trading in 11 unregistered securities on its platform, including SOL, ADA, and ALGO. In February 2024, Kraken filed a motion to dismiss the SEC’s lawsuit, arguing that the cryptocurrencies involved are not securities and that the SEC is overstepping its jurisdiction.
According to the latest development, a U.S. judge is unlikely to dismiss a lawsuit by the SEC against Kraken. The judge is skeptical of Kraken’s arguments, citing a similar SEC case against Coinbase that wasn’t dismissed.
In addition to Kraken and Consensys, the SEC filed lawsuits against Coinbase and Binance last year. The core argument is the same; the commission claimed that these exchanges have been operating in the U.S. as unregistered securities exchanges, brokers, and clearing agencies.
The SEC claims that most cryptocurrencies should be classified as securities, with Bitcoin being a notable exception. SEC Chair Gary Gensler has stated that the agency will continue to take enforcement action against companies that fail to register their digital assets.
The crypto industry has criticized the SEC’s approach as an overreach of its authority. Industry supporters and figures, including Coinbase CEO Brian Armstrong, argue that the SEC lacks the legal authority to regulate cryptocurrencies and that the agency’s actions will stifle innovation and drive businesses overseas.
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