The U.S. Securities and Exchange Commission has issued subpoenas to at least three cryptocurrency companies as part of an investigation into the Ethereum Foundation, delivering a significant blow to industry hopes that the agency would approve spot Ethereum ETF applications from BlackRock and other major asset managers. The news, first reported by Fortune on March 20, 2024, sent ripples through the crypto market and raised urgent questions about the regulatory future of the world’s second-largest cryptocurrency.
TL;DR
- The SEC has issued subpoenas to at least three crypto companies seeking information about their dealings with the Ethereum Foundation
- The investigation reportedly began after Ethereum’s transition to proof-of-stake in September 2022
- SEC Chair Gary Gensler has signaled that proof-of-stake tokens could be classified as securities
- The probe threatens to derail pending Ethereum ETF applications from BlackRock and others
- Crypto attorneys say classification as a security would need court backing to have real-world impact
The Scope of the Investigation
According to Fortune’s reporting, the SEC’s investigation involves demanding that companies furnish any documents and financial records detailing their dealings with the Ethereum Foundation, the Swiss-based nonprofit that oversees the governance and development of the Ethereum blockchain. The subpoenas were described as narrow and focused specifically on the Ethereum Foundation, with at least one company receiving its subpoena in the weeks leading up to the report.
The probe reportedly began shortly after Ethereum’s transition from an energy-intensive proof-of-work consensus mechanism to a proof-of-stake model in September 2022 — an event widely known as “The Merge.” This transition is central to the SEC’s interest, as Chair Gary Gensler has repeatedly stated that cryptocurrencies issued by blockchains relying on proof-of-stake technology could potentially be classified as securities under existing law.
A Long-Simmering Classification Battle
The question of whether Ether is a security or a commodity has haunted the crypto industry for years. In 2018, then-Director of Corporation Finance William Hinman delivered a speech in which he stated that Ether did not resemble a security — a position that many in the industry took as a green light for development and investment. However, emails published in 2023 revealed that Hinman’s speech drew input from multiple parties, and the SEC has never formally codified Ether’s status.
Speaking to DL News, crypto attorney Gabriel Shapiro argued that the SEC’s classification of Ether as a security would have limited practical impact without a court judgment. “The only thing that would matter is if they get a final, binding judgment from a court of competent jurisdiction, and even then I believe they would have a very hard time enforcing that in any practical way, beyond just charging the Ethereum Foundation a fine,” Shapiro said. “But it could give them an excuse to not approve an ETH ETF, which is likely their biggest objective here.”
Implications for Ethereum ETFs
The timing of the investigation is particularly significant for the crypto industry, which had been optimistic that the SEC would follow up its January 2024 approval of spot Bitcoin ETFs with similar products for Ethereum. Major financial institutions including BlackRock had submitted applications for spot Ethereum ETFs, and many analysts had viewed approval as a logical next step.
The subpoena news has dramatically shifted those expectations. If the SEC formally classifies Ether as a security, it would fall under the agency’s regulatory jurisdiction and would be subject to more stringent disclosure and registration requirements — a framework that is fundamentally incompatible with how most cryptocurrencies operate. This classification would effectively preclude the approval of a spot Ethereum ETF under the SEC’s current framework.
Matt McGuire, a former senior prosecutor for the attorney general of Virginia and general counsel at crypto identity platform Violet, noted that the subpoenas were consistent with the SEC’s longstanding posture. “The SEC has been pretty transparent that it informally thinks ETH is a security,” McGuire told DL News. “It’s not surprising to me to read that they’re issuing a lot of subpoenas gathering information, but doesn’t tell us exactly what they’ll do with that information.”
A Broader Regulatory Campaign
The Ethereum investigation is the latest move in what the crypto industry perceives as an aggressive regulatory campaign by the SEC under Chair Gensler. Since 2021, the commission has sued three of the world’s largest crypto exchanges — Binance, Coinbase, and Kraken — alleging that they facilitated the trading of unregistered securities, including tokens like Solana’s SOL, Polygon’s MATIC, and Cardano’s ADA.
The Ethereum Foundation investigation adds a new dimension to this enforcement push. Unlike the tokens named in previous lawsuits, Ether is the second-largest cryptocurrency by market capitalization, with a market cap exceeding $400 billion at the time of the report. A formal security classification would have far-reaching consequences for the entire crypto ecosystem, potentially requiring exchanges to delist ETH or register as securities broker-dealers.
Market Reaction
Ethereum’s price dipped approximately 6% on the initial reports before partially recovering alongside the broader crypto market rally triggered by the Federal Reserve’s dovish rate decision on the same day. The competing narratives — regulatory headwinds versus macroeconomic tailwinds — encapsulated the dual forces shaping crypto markets in early 2024.
Why This Matters
The SEC’s investigation into the Ethereum Foundation represents a pivotal moment for cryptocurrency regulation in the United States. If the agency succeeds in classifying Ether as a security, it would fundamentally reshape the regulatory landscape for proof-of-stake cryptocurrencies and could effectively block the approval of Ethereum ETFs. The outcome of this investigation will have implications not just for Ethereum, but for the entire class of proof-of-stake digital assets and the exchanges that list them. For investors and builders in the crypto space, the message is clear: regulatory uncertainty remains one of the most significant risks in the market, and it is not going away anytime soon.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
gensler going after eth right when blackrock has an ETF application sitting on his desk. you cant make this stuff up
The probe starting right after the Merge in September 2022 and going public now, months later, suggests they have been building a case. This is not a fishing expedition.
^ agree it feels coordinated. but the article says classification as a security would need court backing to actually stick
the narrow scope of the subpoenas is interesting. specifically targeting Ethereum Foundation dealings, not broader DeFi protocols
eth dropped from 3.5k to sub 3.2k on this news. classic gensler dump