Recent reports from CoinDesk and Fortune suggest the U.S. Securities and Exchange Commission (SEC) may classify Ethereum (ETH) as a security—a move with far-reaching implications for the crypto industry, including derailing spot ETH ETF approvals. Here’s why this classification would be misguided and how it contradicts existing regulatory frameworks.
The SEC’s Controversial Investigation into Ethereum
According to Fortune, the SEC subpoenaed several U.S. companies for documents related to their interactions with the Ethereum Foundation, a Swiss nonprofit overseeing Ethereum’s development. This investigation reportedly began shortly after Ethereum’s 2022 transition to Proof-of-Stake (PoS).
SEC Chair Gary Gensler has argued that PoS chains distributing token rewards for staking resemble investment contracts, potentially qualifying as securities. However, he has notably avoided explicitly labeling ETH as such—despite targeting other PoS tokens like Cardano (ADA) and Solana (SOL) in enforcement actions.
ETH vs. ADA: A Legal Double Standard?
Cryptocurrency lawyer Ignacio Ferrer-Bonsoms highlights the inconsistency in SEC’s approach:
- Both Ethereum and Cardano raised funds via token sales (ETH: $18.3M in BTC; ADA: $62M).
- Both are managed by Swiss-based foundations.
- Both allocate tokens to founders and foundations.
Key Argument: If ADA is a security, ETH must logically face the same classification—yet the SEC has avoided this conclusion.
Ferrer-Bonsoms also points to Ethereum’s EIP-1559 upgrade, which introduced a deflationary burn mechanism, as evidence of value accrual for ETH holders. "This creates an expectation of profit, a hallmark of securities," he writes.
Regulatory Precedents Favor ETH as a Commodity
CFTC’s Stance
The Commodity Futures Trading Commission (CFTC) has long treated ETH as a commodity, allowing ETH futures trading. In its lawsuit against Sam Bankman-Fried, the CFTC explicitly called ETH a commodity—alongside BTC and USDT.
SEC’s Contradictory Actions
ETH Futures ETFs: In October 2023, the SEC approved ETH futures ETFs, implicitly acknowledging ETH’s non-security status.
- Brian Quintenz (a16z Crypto Policy Lead) noted: "The SEC’s approval signaled ETH was outside its jurisdiction."
Why Reclassification Would Harm the Market
- Legal Chaos: Businesses relying on ETH’s commodity status (e.g., CME, Cboe) would face operational disruptions.
- Regulatory Turf War: The CFTC could challenge the SEC’s overreach, creating institutional conflict.
- Investor Backlash: Retroactively labeling ETH a security could trigger lawsuits over losses from regulatory whiplash.
Austin Campbell (Columbia Business School) warns: "Arbitrary reclassification risks billions in damages and erodes trust in regulators."
Ethereum’s Decentralization Defenses
ETH vs. BTC: A Comparison
- Developer Activity: Ethereum boasts more developers and dApps than Bitcoin.
- Holder Distribution: 7.35M long-term ETH holders vs. 3.36M BTC holders (per IntotheBlock).
- Governance: While Ethereum’s founders remain influential, its ecosystem includes thousands of independent stakeholders.
Brian Frye (University of Kentucky) argues: "ETH resembles BTC more than any other token. The SEC’s own logic for BTC as a commodity applies equally to ETH."
FAQs: Ethereum’s Regulatory Status
Q1: Could the SEC really classify ETH as a security?
A1: Yes, but it would contradict the CFTC’s stance and invite legal challenges.
Q2: How would this impact ETH ETFs?
A2: Approval becomes unlikely, as securities require stricter compliance (e.g., SEC-registered custodians).
Q3: What’s the best argument against ETH being a security?
A3: Historical precedent—ETH’s decade-long treatment as a commodity—and its decentralized ecosystem.
👉 Explore ETH’s regulatory future with expert insights
👉 Why the CFTC’s stance matters for crypto markets
The SEC’s potential overreach underscores the need for clear crypto regulations—without stifling innovation. As the debate continues, market participants should prepare for possible volatility.