According to Bloomberg, the US Securities and Exchange Commission (SEC) is investigating Ethereum, raising questions about the future of Ether and related digital assets. The unspecified investigation highlights the long-running debate over whether Ether should be classified as a security. Market observers point to a series of legal setbacks suffered by the SEC over the last year that have undermined Chairman Gary Gensler's enforcement crackdown.
The biggest immediate impact of the investigation is on the likelihood of the SEC approving exchange-traded funds (ETFs) investing directly in Ether. Issuers such as VanEck and Fidelity have filed for permission to launch them, but Bloomberg Intelligence analysts estimate there's only a 20% chance of approval. A security designation could also put pressure on exchanges to delist Ether, as happened with 19 tokens named as securities in lawsuits last year.
If Ether is designated as a security, it may create trouble for decentralized exchanges (dexes) that run on the Ethereum blockchain. Other digital assets, like nonfungible tokens (NFTs) minted on the Ethereum network and bought and sold with Ether, could also be impacted. However, blockchains that compete with Ethereum, such as Solana, could benefit as some Ethereum businesses and users migrate over if Ether is deemed a security.
The SEC is investigating Ethereum after its 2022 upgrade, which introduced a new token issuance model and a new governance structure. In its investigation, the agency has demanded information from companies about dealings with the Ethereum Foundation. The outcome of the investigation could be influenced by the 2024 US election, as Gensler may not be in office depending on the results.
