SEC's Covert Probe Reveals Gensler's Suspicions of Ethereum as Unregistered Security

According to an unredacted version of Consensys' lawsuit against the SEC, Gary Gensler, the SEC Chair, considered Ethereum, the second-largest cryptocurrency, an unregistered security a year ago. A formal probe was initiated by Gurbir Grewal, SEC's Division of Enforcement Director, in March 2023, involving subpoenas to various Ethereum-related entities. The SEC reportedly enforced secrecy, preventing subpoena recipients from disclosing information about the investigation.

SEC's Secret Probe Uncovers Gensler's Suspicions of Ethereum as an Unregistered Security

A bombshell revelation emerged from the unredacted lawsuit filed by ConsenSys against the U.S. Securities and Exchange Commission (SEC), exposing the agency's covert investigation into Ethereum's security status and the SEC Chairman's long-held suspicions about its classification.

According to the unredacted documents, SEC Chairman Gary Gensler harbored concerns about Ethereum's legal status as early as a year ago, viewing the second-largest cryptocurrency as an unregistered security. This stance prompted Gurbir Grewal, Director of the Division of Enforcement, to initiate a formal investigation in March 2023, issuing subpoenas to various individuals and entities associated with the Ethereum token.

Secrecy and Nondisclosure Agreements

The SEC's investigation was cloaked in secrecy, with sources comparing their experience to signing nondisclosure agreements. Subpoena recipients were instructed to remain silent about the probe in exchange for access to further information. ConsenSys, a key Ethereum backer, was among those targeted with subpoenas.

Wells Notice and SEC's Refusal to Clarify

ConsenSys's subsequent lawsuit against the SEC revealed that the company received a Wells notice from the regulator in April, signaling the SEC's intention to take enforcement action. Despite repeated inquiries from Congressman Patrick McHenry during a congressional hearing in April 2023, Chairman Gensler declined to clarify his position on Ethereum's security status. Just days after the hearing, the SEC voted to approve the Ethereum investigation.

Hostile Stance and Gensler's Shifting Views

The SEC's adversarial stance toward Ethereum is not entirely unexpected. In a recent interview, Gensler hinted that Ethereum could fall under the jurisdiction of unregistered securities laws. Notably, his previous stance during his MIT days recognized Ether as a non-security. However, Ethereum's transition to a proof-of-stake consensus mechanism appears to have altered his perspective.

Confusion and Contradiction

The SEC's approval of Ethereum futures exchange-traded funds (ETFs) has raised questions about its underlying stance on the cryptocurrency. ETF analyst Nate Geraci expressed confusion, stating that the approval of eth futures ETFs implied implicit acceptance of Ethereum as a non-security commodity.

Unresolved Questions and Legal Implications

The unredacted lawsuit and the SEC's ongoing investigation have brought to light the agency's concerns about Ethereum's security status. However, the SEC's lack of clarity and its secretive approach have left many questions unanswered. The legal implications of the investigation remain uncertain, and the fate of Ethereum as an unregistered security or a non-security commodity hangs in the balance.