Ethereum Has Been Under SEC Scrutiny Since March 2023 - Reports

Recent court filings have disclosed that the US Securities and Exchange Commission (SEC) has been investigating Ethereum, the second-largest cryptocurrency by market cap, since March 2023. 

This investigation dubbed the "Ethereum 2.0" inquiry, centers on the asset’s classification as a security.

Based on court records filed by Consensys, the SEC and its Chair Gary Gensler "appear to have believed for at least a year" that Ether was a security trading out of compliance with federal regulations.

Consensys, the blockchain and web3 company behind MetaMask Wallet, recently filed a lawsuit against the SEC, criticizing its regulatory actions regarding Ethereum. 

The Genesis of the Investigation

The focus intensified when Gurbir Grewal, Director of the Division of Enforcement, issued a Formal Order of Investigation on March 28, 2023. This order granted the SEC staff extensive authority to investigate and issue subpoenas to parties involved in the buying or selling of Ethereum. 

Sources close to the matter indicated that the SEC instructed subpoena recipients to maintain confidentiality about the investigation's details.

This ongoing investigation seems to be at odds with previous SEC declarations under different leadership. In June 2018, Bill Hinman, then-director of Corporation Finance, articulated that Ethereum, like Bitcoin, was not considered a security.

However, the recent actions under Chairman Gensler's administration suggest a potential reversal of this stance, signaling a destabilizing shift in regulatory approach.

Implications for Ethereum and the Crypto Market

Just days before the new revelations, Gensler declined to clarify the SEC’s current position on Ethereum during his testimony before the House Financial Services Committee.

The outcome of the SEC’s investigation could have profound implications for the Ethereum network and the broader cryptocurrency market. If Ether is determined to be a security, it could contradict earlier SEC guidelines and have ramifications for the entire digital asset sector, especially as it relates to the spot Ether exchange-traded fund, which faces approval delays.