The U.S. Securities and Exchange Commission (SEC) is reportedly concluding its investigation into Ethereum 2.0 and ConsenSys, the company behind the MetaMask wallet. In response to this update, ConsenSys announced it had “survived the SEC,” marking a significant victory for ETH developers.
“Ethereum has prevailed over the SEC. Today, we are thrilled to announce a major victory for Ethereum developers, technology providers, and industry participants: the SEC’s Enforcement Division has informed us that they are closing their investigation into Ethereum 2.0.”
Ethereum 2.0 refers to the post-Merge era, when the network transitioned from Proof of Work (PoW) to Proof of Stake (PoS). Clarifying the update’s implications for ETH sold after the Merge, the company added: “This means the SEC will not allege that the sale of ETH constitutes a securities transaction.”
The Struggle Between Ethereum and the SEC, and Community Reaction
In April, ConsenSys filed a lawsuit against the SEC, accusing it of “unlawful power grab,” alleging the SEC was targeting it and its developers while classifying ETH as a security. However, much has changed since the lawsuit, with the intensity of the crypto battle diminishing and partial approval of spot ETH ETFs.
Therefore, the SEC’s decision to withdraw from the investigation is not surprising. Part of the SEC’s statement on this move reads:
“We do not intend to recommend enforcement action to the Commission against your client, ConsenSys Software Inc., in connection with this investigation.” Alexander Grieve, a government official at Paradigm, described the SEC’s letter as “unusual” and “rather evasive” regarding the announcement.
However, this update reignites the debate over the Howey Test, which the SEC frequently uses to determine whether an investment product qualifies as a security.
Reacting to the SEC-Ethereum update, Paul Grewal, Chief Legal Officer of Coinbase, remarked: “Good. It was always a ridiculous theory of liability…How do you reconcile this decision with other projects being wrongly targeted due to the SEC’s flawed Howey analysis?”
Good. It was a silly theory of liability to begin with.
But what about the ecosystem? What about the promotional statements? What about the efforts of others?
How do you explain both this decision and the other projects maligned by the SEC’s broken Howey analysis? https://t.co/H5Z5PsY39O
— paulgrewal.eth (@iampaulgrewal) June 19, 2024
Another analyst and tech investor, Fred Krueger, called the Howey Test “a joke” and suggested that the decision was politically motivated.
ETH Price Action
Clearly, the update has turned what was previously a headwind into a tailwind for major ETH investors.
Hours after the update, a whale acquired ETH worth $19.7 million. As of the time of writing, ETH has risen by 3% in the past 24 hours, trading at $3,500. Additionally, open interest (OI) has increased by 4%, indicating a significant influx of liquidity into the derivatives market, potentially driving prices higher.
