Ethereum Gains nearly 4% in Wake of SEC Dropping Its ETH Investigation Without Charges

Ethereum received a major boost in other markets after it was announced late yesterday that the Securities and Exchange Commission had closed its investigation into "Ethereum 2.0," according to Consensys. Consensys filed a lawsuit against the SEC in April. In its statement, the company claims that the SEC attempted to "regulate ETH as a security even though ETH does not have any securities characteristics and although the SEC has previously advised that ETH is not a security and is not subject to SEC jurisdiction."

The complaint stems from news in March that the Ethereum Foundation was under investigation by an unnamed “government agency.” However, this investigation has now been withdrawn.

“This means the SEC will not pursue charges that ETH sales constitute securities transactions,” the Ethereum software company tweeted last night.

At the time of writing, Ethereum is trading at just over $3,500 after rising 3.1% in the last 24 hours. This makes the world's second-largest cryptocurrency by market capitalization 13.8% more expensive than it was a month ago, according to CoinGecko.

It is worth noting that according to CoinGecko, trading volume on the spot market reached $21 billion over the past 24 hours.

The only time ETH trading volumes increased over the past month was on May 24, the day after the US Securities and Exchange Commission approved Ethereum exchange-traded funds for trading.

But ending the SEC investigation is not enough to reverse the impact on the rest of the industry, Coinbase Chief Legal Officer Paul Grewal said on Twitter.

What about advertising? What about the efforts of others?” he wrote. "Can you explain this decision and other projects that suffered from Howey's flawed SEC analysis?"

The SEC has been implementing what is known as the Howey test for many years to determine whether an asset meets the definition of a security and therefore needs to be registered with the SEC. But it prompted much criticism from SEC commissioner Hester Pierce, law professors and legislators - all of whom argued that it was outdated and completely unsuitable for application to the crypto industry.

The situation became even more dire when US Securities and Exchange Commission Chairman Gary Gensler made it clear that evidence of assets in shares could qualify as securities under the Howey test immediately after the Ethereum merger.

And that is why the subject of the SEC investigation was called “Ethereum 2.0”. The Ethereum network became a proof-of-stake platform following a merger in September 2022, which moved it from a proof-of-work mechanism like Bitcoin to a proof-of-stake consensus mechanism.

Since then, a list of assets has emerged that have been named in lawsuits filed by the SEC accusing the companies of trading unregistered securities. Analysts even suggest that the fact that assets are proof-of-work is why some coins, such as Litecoin (LTC) and Dogecoin (DOGE), escape the regulator's radar.

In April 2023, Bittrex was accused of claiming that OMG Network (OMG), Dash (DASH), Monolith (TKN), Naga (NGC), Real Estate Protocol (IHT), and Algorand (ALGO) were securities.

A few months later, the SEC, in a lawsuit against cryptocurrency exchange Coinbase, said that some of the assets were unregistered securities, including BNB: Binance's BNB token, the exchange's now-defunct stablecoin, BUSD and 10 other tokens: Solana (SOL), Cardano ( ADA), Polygon (MATIC), Filecoin (FIL), Cosmos Hub (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS) and COTI (COTI).

The mention of coins in lawsuits - even before a ruling was made on whether the allegations were true - was enough to get some of them removed from cryptocurrency trading platforms.