The Securities and Exchange Commission has intensified its scrutiny of Ethereum, the second-largest crypto after Bitcoin, by initiating a legal campaign to classify ETH as a ‘security.’ 

This regulatory probe will be a significant challenge for the crypto ecosystem while firms are fighting for the regulatory approval of spot Ethereum ETFs. 

Why the probe?

According to reports, the SEC has simultaneously issued several U.S. companies dealing with ETH transactions subpoenas related to an investigation aimed at classifying Ethereum as a security. 

If this legal probe begins, it could have profound implications for Ethereum, the potential approval of ETH ETFs, and the broader crypto market.

The Ethereum Foundation has acknowledged in its GitHub repository that the Foundation has been receiving inquiries from “state authority.” Moreover, the Ethereum ecosystem website’s GitHub repository has also removed certain disclosures, including the warrant canary, from the website’s GitHub repository, meaning the investigation is highly sensitive.

While the scope and the aim of the investigation from the “state authority” remain undisclosed, we have only learned that the investigation is based on the timeline of 2022 when Ethereum technology transitioned to a proof-of-stake network. 

Analysts and Market Reaction

Reports have unveiled a lawyer disclosing the involvement of a Swiss regulator in requesting information from the Ethereum Foundation, a Swiss-based firm, indicating that the Foundation is coordinating with the SEC. 

Market reaction to the news has been palpable, with Ethereum’s native token, ETH, experiencing a significant price decline of up to 6% amid concerns about the regulatory uncertainty surrounding ETH ETFs. The SEC’s reluctance to engage with potential ETF issuers has raised doubts about the prospects of ETH ETF approval by the May deadline.

Scott Johnson, a general partner at Van Buran Capital, commented on the SEC’s actions, suggesting that “the SEC has been in an untenable position for some time with its position on ETH.” 

The SEC’s intensified investigation into Ethereum can have far-reaching implications for the broader crypto market.

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