Ethereum Under Scrutiny; Market Now Bearish on Possible ETH ETFs
Multiple news outlets report that the Ethereum Foundation is currently the subject of scrutiny by the US Securities and Exchange Commission (SEC). The SEC is reportedly demanding information from companies about their dealings with the Ethereum Foundation as part of the review of the different aspects of Ether.
State regulators, particularly the US Securities and Exchange Commission (SEC), are intensifying their regulation of the cryptocurrency industry. Multiple reports initially stated that an unidentified state authority had started its review of the Ethereum Foundation. However, succeeding posts, including the one from the Wall Street Journal, identified the state authority as the SEC.
A new update was posted on the Ethereum Foundation GitHub repository, confirming this latest development. According to the protocol's GitHub update, there was an unclear inquiry into the Ethereum Foundation's dealings, including the Ether made weeks ago. The request was the first time a state authority has taken interest in the foundation and its blockchain. The GitHub post shared that there was a 'voluntary inquiry from a state authority that included a requirement for confidentiality.'
This latest move indicates a renewed interest by regulators, particularly the SEC, in regulating the cryptocurrency industry. Gary Ensler, the SEC's chair, has shared, on multiple occasions, his apprehensions about cryptos. For Mr. Ensler, the crypto industry is potentially 'rife with abuses and fraud. He added that Bitcoin is a highly speculative and volatile underlying asset and that many of these digital assets are unregistered securities, which should be subject to SEC rules.
Ether: A security or not?
This isn't the first time that state agencies, including the US Securities and Exchange Commission (SEC), have explored the possibility of tightening the regulations on cryptos, including Ethereum. In September 2022, SEC Chair Gary Ensler mentioned that federal securities regulations may cover staked currencies, as they can be considered securities. The announcement came after Ethereum made a vasta critical software update, switching its consensus mechanism to a proof-of-stake.
In a Wall Street Journal report, Mr. Ensler said that cryptocurrencies and their intermediaries that allow holders to stake their digital coins must undergo a crucial test to determine whether this asset is a security. The SEC chair refers to the Howey Test, which the Supreme Court developed to define an 'investment contract.'
According to a landmark Supreme Court ruling, an 'investment contract' must possess these attributes: there's an investment of money in a common enterprise with reasonable expectations of profits, thanks to the managerial efforts of others. While Chairman Ensler did not specifically identify which crypto he was referring to at the time of the announcement, many speculate that it's aimed at Ethereum. The statement came hours after Ethereum completed its transition via the Merge.
Many crypto developers and supporters argue that this test is outdated and should no longer be used as the standard. Some explain that crypto-assets do not possess the key characteristics, and some of these assets can be compared to popular collectibles like baseball cards.
Ethereum blockchain is back in the spotlight
The latest SEC news and reported inquiry are critical for the Ethereum blockchain. This March, Ethereum announced its Dencun upgrade, the biggest change on its blockchain since its shift to a new consensus. According to multiple news reports, this latest upgrade aims to improve the user experience and lower the fees for some users using the Layer 2 blockchain. In short, the Dencun upgrade aims to address its low throughput, slow transactions, and high user fees, which traditionally defined the blockchain's performance.
An Investopedia article explains that the average transaction fee at the blockchain is $2.30 as of February 22nd, which is more expensive than Solana. This feature puts the blockchain at a disadvantage as users look for other platforms where costs are lower. In short, the Dencun upgrade can help the Ethereum blockchain become faster and more scalable.
Also, there's a growing anticipation that Ethereum could be the next digital asset to trade as an ETF.
Last January, the SEC announced its approval of the spot Bitcoin ETFs. This move by the SEC created a ripple effect in the industry and helped add more weight and credibility to the crypto asset class. Also, the introduction of spot Bitcoin ETFs made cryptos more accessible to retail traders. After that, Bitcoin's market price skyrocketed, hitting an all-time high of $73,000, before retracing its historical price to settle in the $60k level this week.
With the success of this new type of ETF, industry watchers and crypto supporters are looking forward to Ethereum as the next asset to get the upgrade. A similar story for Ethereum will have massive implications for its value and the whole crypto market. But then, the SEC inquiry happened, and Ether's price takes a beating this week.
The unclear inquiry into the Ethereum Foundation and the required confidentiality cast doubt on the future of spot ETFs for Eth. Can we still expect it this year? While the SEC's decision on this matter is again a subject for speculation, one thing is clear today: Ether's price takes a beating, reflecting a bearish sentiment on the second most popular crypto.
