Recently, a significant development unraveling the beliefs of the US Securities and Exchange Commission (SEC) and its chairman, Gary Gensler, has come to light. Court filings have disclosed the SEC’s position that Ethereum (ETH) might be considered an “unregistered security” under the Howey Test. Regarded as an outdated legal framework for regulating crypto assets by the majority of crypto advocates, this revelation has sparked widespread discussion and implications in the industry.

As outlined by a recent report from Fox Business, these details surfaced following Ethereum software company ConsenSys’s filing of an unredacted complaint against the SEC, prompting a closer examination of Ethereum’s regulatory standing.

Chairman Gensler and the SEC seemed to have held the belief for at least a year that Ethereum was operating as an unregistered security, potentially violating federal regulations. This led to the SEC’s Division of Enforcement initiating a formal investigation, dubbed “Ethereum 2.0,” into Ethereum’s status as a security on March 28, 2023. Notably, this investigation involved probing individuals and entities engaged in the buying and selling of ETH tokens.

The potential reclassification of Ethereum as a security by the SEC contradicts previous guidance provided under former SEC Chairman Jay Clayton. In a significant development, Bill Hinman, then-Director of Corporation Finance, declared in June of the preceding year that Ethereum and Bitcoin (BTC) were not considered securities, leading to a substantial surge in ETH’s price.

Additionally, the Commodity Futures Trading Commission (CFTC) categorized ETH, the native token of the Ethereum network, as a commodity falling under its jurisdiction.

The SEC’s investigation into Ethereum was marked by a high level of secrecy, with subpoena recipients required to sign confidentiality agreements. Although the motive behind this secrecy remains mysterious, the potential implications for the crypto market, especially given Ethereum’s substantial market cap of nearly $400 billion, are profound.

Amid Chairman Gensler’s evasive stance on Ethereum’s regulatory status, the industry speculated that Ethereum’s transition to a “proof-of-stake” consensus mechanism in September 2022, resembling a security more than the original “proof-of-work” mechanism used by Bitcoin, might have triggered the SEC’s scrutiny.

ConsenSys, the Ethereum software company, made waves by filing a lawsuit against the SEC, asserting that the agency conducted an “unlawful” power grab in its attempt to classify ETH as a security. This legal action has shed light on the ongoing investigation with the SEC making multiple document requests and intensifying its scrutiny in recent weeks.

The implications of the SEC’s inquiry into Ethereum’s status have extended to the market, with ETH trading at $3,170, experiencing a recent decline of more than 4%. This ongoing saga poses critical questions about the future regulatory landscape for cryptocurrencies and underscores the complexities of navigating the evolving crypto market.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.