Is Ether a security? The U.S. SEC seeks to determine

Illustration: Dado Ruvic (Reuters)

The U.S. Securities and Exchange Commission (SEC) is considering whether to classify Ether, the second-largest cryptocurrency by market cap, as a security. Fortune reports that the financial watchdog has sent subpoenas to three companies as part of probe of the Ethereum Foundation, the ecosystem that works behind the Ethereum blockchain network.

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The news comes on the heels of the SEC’s hesitance to approve spot Ether ETFs, leaving applicants like Hashdex and ARK 21Shares (pdf) waiting for final decisions in May. While the agency approved 11 Bitcoin ETFs earlier this year, it seems like Ethereum ETFs may face regulatory hurdles.

According to the Ethereum Foundation’s GitHub on Feb. 26, the group has “received a voluntary enquiry from a state authority that included a requirement for confidentiality.”

Security, currency, or commodity?

There’s been plenty of discussion around whether cryptocurrencies like Ether are a type of currency, security, or commodity since Bitcoin was introduced in 2009. SEC chair Gary Gensler, who’s taught a course on blockchain and cryptocurrencies at the Massachusetts Institute of Technology, is known for his strict approach to regulating crypto. He has referred to the cryptocurrency market as the Wild West, emphasizing its need for regulation.

What next for the crypto market?

The SEC’s current action is a jolt to the potential of spot Ethereum ETFs. The Ethereum blockchain network, which went through a major upgrade earlier this month, is home to thousands of decentralized finance (DeFi) applications, and the move is expected to affect the crypto market. At the time of writing, Ether — the native token of Ethereum — was down 15% over the past seven days, hovering around $3,300.

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