SEC – Ethereum 2.0 investigation closes: ‘Silly to begin with…’

• The SEC has backed down on its Ethereum investigation.
• The community slammed the Howey test.

The U.S. Securities and Exchange Commission is reportedly ‘closing’ the investigation into Ethereum [ETH] 2.0 and ConsenSys, the firm behind Meta Mask wallet. 

Reacting to the update, ConsenSys stated it has ‘survived SEC’ and marked a win for ETH developers. 

‘Ethereum survives the SEC. Today we’re happy to announce a major win for Ethereum developers, technology providers, and industry participants: the Enforcement Division of the SEC has notified us that it is closing its investigation into Ethereum 2.0.’

Ethereum 2.0 refers to the post-Merge era, when the network changed from PoW (proof of work) to PoS (Proof of Stake). Clarifying the impact of the update on ETH sold post-Merge, the firm added, 

“This means that the SEC will not bring charges alleging that sales of ETH are securities transactions.”

SEC – Ethereum tussle, and community reactions

In April, Consensys sued the SEC for an “unlawful power grab,” accusing the SEC of going after it and its developers and classifying ETH as ‘security.’ 

However, much has changed since the lawsuit, with an easing of the war on crypto and partial approval of spot ETH ETFs. 

So, the SEC’s decision to back down from the investigation wasn’t much of a surprise. Part of SEC’s statement on the move read, 

“We do not intend to recommend an enforcement action by the Commission against your client, Consensys Software Inc., with respect to this investigation.”

For his part, Alexander Grieve, Government Affairs officer at Paradigm, suggested that the SEC’s letter was “unusual“ and “pretty evasive” regarding notification. 

However, the update brought up the Howey test debate again. The SEC typically uses the test to determine whether an investment product is a security.

Reacting to the SEC-Ethereum update, Paul Grewal, chief legal officer at Coinbase, commented, 

“Good. It was a silly theory of liability, to begin with…How do you explain both this decision and the other projects maligned by the SEC’s broken Howey analysis?”

Another analyst and tech investor, Fred Krueger, called the Howey test “a joke“ and suggested the decision was political. 

ETH price action

Apparently, the update seems to have turned a previous headwind into a tailwind for major ETH investors. 

A few hours after the update, a whale scooped up $19.7 million worth of ETH. As of press time, ETH was up +3% in the past 24 hours and traded at $3.5K. 

Additionally, the Open Interest (OI) rates were up 4%, denoting a substantial inflow of liquidity into the derivatives market and could give bulls a leg up.