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U.S SEC drops investigation on Ether: What It Means for Ethereum’s future

By Solomon Victor

The United States Securities and Exchange Commission (U.S SEC) has dropped investigation on Ether as a security asset. This is according to Consensys, the blockchain development firm that sued the SEC in April 2024 over SEC’s attempts to regulate Ether, the cryptocurrency of the Ethereum ecosystem. 

Announcing Ethereum’s survival of the U.S SEC via its X page, Consensys stated that the Enforcement Division of the U.S SEC has notified Consensys that it was closing its investigation into Ethereum 2.0: “This means that the SEC will not bring charges alleging that sales of ETH are securities transactions”.

As pointed out by Consensys, the decision follows a letter it sent on June 7 “asking the SEC to confirm that the May ETH ETF approvals, which were premised on ETH being a commodity, meant the agency would close its Ethereum 2.0 investigation.”

The goal behind its decision to sue the U.S SEC in April 2024, as tweeted by Consensys in April, was “to ensure that Ethereum remains a vibrant and indispensable blockchain platform and to preserve access for the countless developers, market participants, and institutions who have a stake in the world’s second largest blockchain.”

U.S SEC: Investigation concluded, but Ethereum is not exonerated and action may still be taken based on the investigation concluded.

In its June 18 2024 reply letter titled ‘In the Matter of Ethereum 2.0 (C-08950)’, the U.S SEC notified Consensys’ legal counsel that it has concluded the investigation in the matter. 

According to the U.S SEC,  though it does not agree with the factual statements or legal conclusions submitted to it (via a June 4 Letter), based on the information it has at the time of writing, the U.S SEC “do not intend to  recommend an enforcement action by the Commission against … Consensys Software Inc. with respect to this investigation.”

The U.S SEC however warns that its decision to not recommend an enforcement action “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.” This is in accordance with Wells Notice procedure. The letter is signed by Kristin M. Pauley, Assistant Director, Division of Enforcement, U.S SEC.

In March 2023, the U.S SEC had launched an investigation to determine whether Ether is a security. Also, Gary Gensler, the U.S. SEC boss, claimed in the same period that all proof-of-stake (PoS) assets are securities, further driving the sentiment that Ether would be declared a security soon.

“Momentous” for the Crypto Industry

For Consensys, the “closing of the Ethereum investigation is momentous”, it said.

If not short-lived, the U.S SEC’s decision to reportedly close its investigation into Ethereum 2.0 is a great victory for the cryptocurrency space, confirming that Ether sales are not securities transactions. 

The U.S SEC’s decision on Ethereum has notable implications, including no securities charges for ETH sales, and allowing approved ETH exchange-traded funds (ETFs) to trade. This decision removes uncertainty, paving the way for Ethereum’s further growth, and may influence institutional investors’ decisions on which chains to use, build on, and invest in. 

However, while the outcome above is a major win for Ethereum, Consensys, notes that it does not resolve all regulatory issues faced by the industry as the firm continues to seek clarity on specific software offerings. 

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Market Reaction to U.S SEC’s Decision 

Following the U.S SEC’s announcement, Ethereum’s price experienced an immediate 3% surge, reaching $3,555, per data on CoinGecko

After experiencing a dip to $3,350 earlier this week, Ethereum (ETH) is currently trading with renewed positive momentum. On the weekly timeframe, ETH is facing a significant resistance level at $3,900. The Relative Strength Index (RSI) sits at 57, indicating a neutral market sentiment that suggests there is still room for upward movement before hitting overbought conditions. If the bullish trend continues, ETH could break through this resistance and move towards setting a new high, supported by improving market dynamics and investor confidence.

This price movement indicates a positive market response to the news, reflecting increased investor confidence and potential increased adoption. The price increase also goes ahead to show that the market had anticipated a favorable outcome.

Interesting to note that the increase in price was accompanied by a boost in market capitalization, solidifying Ethereum’s position as the second-largest cryptocurrency. Trading volume also saw a major increase, indicating heightened market activity and interest in Ethereum. These changes strongly suggest investors buying into Ethereum’s newfound regulatory clarity.

Compared to Bitcoin (BTC) price movement, ETH price increase is greater, showcasing the market’s optimism towards Ethereum’s prospects. BTC price has historically been more volatile, and its movement can influence the broader cryptocurrency market. However, Ethereum’s price movement following the SEC’s announcement points to the fact that it is gradually decoupling from BTC influence, forging its own path in the market.

Read also: Between investing in bitcoin and Ether

The U.S SEC’s decision to drop investigation on Ethereum has greatly boosted investor sentiment, with confidence and perception of the cryptocurrency shifting positively. Investors are now more likely to view Ethereum as a viable and regulated investment opportunity, leading to increased adoption and potential long-term growth. This shift in sentiment is important for Ethereum’s future, as it opens the door to broader institutional investment and mainstream acceptance.

Moreover, increased institutional investment and mainstream acceptance will likely lead to greater stability and liquidity in the Ethereum market. This, in turn, will attract more investors, creating a snowball effect that further solidifies Ethereum’s market position. As a result, decentralized finance (DeFi) and non-fungible tokens (NFTs) built on the Ethereum blockchain is also expected to benefit from increased adoption and interest, thereby leading to new use cases and innovations.

The impact on DeFi and NFTs will be particularly huge, as these sectors rely heavily on Ethereum’s infrastructure. With increased institutional investment and mainstream acceptance, DeFi protocols and NFT marketplaces may see increased activity, leading to new opportunities for growth and innovation. This, in turn, will further establish Ethereum as the go-to platform for decentralized applications and digital assets, cementing its position in the cryptocurrency market.

Read Also: Ethereum and Altcoins: What are the Opportunities in the Altcoin Market?

Positive Future Implications of U.S SEC’s Decision 

The U.S SEC’s decision on Ethereum has huge future implications which may most likely lead to long-term growth in Ethereum’s price and market capitalization. As institutional investment and mainstream acceptance increase, ETH value may appreciate steadily, solidifying its position as a leading cryptocurrency. This growth could also lead to increased adoption and development on the Ethereum blockchain, further driving up demand and value for ETH.

Also, the improved regulatory clarity and legitimacy resulting from the U.S SEC’s decision will likely have a profound impact on Ethereum’s future. With a clearer understanding of how regulators view Ethereum, businesses and investors can operate with greater confidence, leading to increased innovation and investment in the ecosystem. This legitimacy will also attract more institutional investors, further driving up demand and value. 

Negative Future Implications of U.S SEC’s Decision 

First, while increased institutional investment can bring benefits to the Ethereum ecosystem, it also poses challenges and risks. Centralization and institutional control can lead to decreased decentralization and community involvement. Here, there is some level of trade-off between going mainstream and  remaining community-driven, which may undermine the core principles of the Ethereum blockchain. 

Second, institutional investment can also lead to increased market volatility, as large investors can have a momentous impact on the market with their trades. As Ethereum navigates its regulatory challenges, it must balance the benefits of institutional investment with the need to maintain its decentralized and community-driven ethos.

From another dimension however, should the reported U.S SEC decision on Ether be short-lived—considering that the U.S SEC is not incapable of revisiting the issue  depending on the information at its disposal at the relevant time—the implications for the crypto industry would most likely be costly for the Ethereum ecosystem, potentially pulling down Ether price significantly, at least in the immediate and short-term.

The Bigger Picture for ETH

Ethereum, given its robust infrastructure, decentralized applications, and huge community, is arguably the biggest blockchain ecosystem today. However, there is a general sentiment that ETH price over the years has not been a true reflection of the value of the Ethereum ecosystem. Is this about to change?

Generally, the reported U.S SEC’s decision has had a broader impact on the cryptocurrency market, providing some level of regulatory clarity and legitimacy. This increased clarity has the potential to attract more institutional investors, leading to increased innovation and investment in the ecosystem. This is expected to positively impact ETH price in the long term, subject to any unforeseen adverse regulatory actions against Ethereum in the future.

Consequently, Ethereum is likely to maintain its status as the dominant smart-contract platform, solidifying its position in the market and potentially leading to increased adoption and development on the platform. 

Besides, the broader cryptocurrency market may experience increased growth and adoption, with Ethereum at the forefront, at least as far as altcoins are concerned.

Read Also: BNB hits new all-time high of $710: Prospects for investors and traders

Updated to include the U.S SEC reply letter.

Credit: Solomon Victor is a Technical Analyst who is also knowledgeable about various aspects of blockchain and cryptocurrency.