Securities and cryptocurrencies: The SEC drops the Ethereum case, but continues to pursue Ripple

The latest news from the crypto market talks about new developments in the respective cases of the SEC against Ripple and Ethereum in relation to the security token issue.

The federal agency of the United States has definitively abandoned all investigations on the Ethereum Foundation, determining that ETH does not fall within the definition of security and thus preparing for the asset’s entry into U.S. exchange-traded funds.

In the meantime, the dispute against Ripple continues, with the SEC requesting a fine of over 100 million dollars, awaiting the resolution of the case at the trial that will determine once and for all if XRP should be considered a financial security or not.

All the details below.

The SEC concludes investigations on ETH: everything ready for the launch of spot ETFs

According to recent reports from the cryptographic developer Consensys, the SEC is about to drop all investigations into the Ethereum Foundation, first initiated in March 2023 with the intention of classifying ETH as a security token.

As reported within the post “Ethereum has survived the SEC” and now the insiders of the well-known blockchain of smart contracts will be able to build freely without having to worry about regulatory limitations.

This very important milestone for the sector comes after Consensys had sued the SEC on April 25, only to renegotiate with the agency on June 7, requesting the case to be closed.

ETH no longer considered a financial commodity, after 6 years in which the SEC has repeatedly changed its mind on the matter. Initially, in fact, in 2018 it expressed opposition to this connection, only to return to accuse the issuers of the currency of selling unregistered securities after the chain’s consensus mechanism transitioned from PoW to PoS.

To tell the truth, even Gary Gensler, chairman of the Commission, has never given a clear and precise definition regarding Ethereum, while he had expressed himself in a much more convinced manner for other cryptographic products such as those offered by Ripple, Cardano, and Dash.

During a testimony to Congress last year, he indeed refused to answer the question of whether ETH fell under the definition of security and if it meets the requirements of the Howey Test. 

Now that the SEC has closed the investigations on Ethereum, we can officially prepare for the listing of the cryptocurrency in the spot ETF markets in the United States.

The Securities and Exchange Commission had already approved this kind of financial products with underlying ether in May, but the S-1 applications of the registrants were not given the green light.

The landing of exchange-traded funds for ETH could now be very close: indicatively the listing is expected by the beginning of autumn but it could also arrive in the coming weeks.

The asset managers like BlackRock, Fidelity, and Bitwise are getting ready by starting to release the first promotional videos of the next investment offering, implying that it is only a matter of time before Ethereum makes an appearance on Wall Street.

Despite the victory against the SEC in a historic lawsuit, Consensys warns that the broader web3 sector could still be under the watchful eye of the federal agency.

As reported in a post from last week:

“The closure of the Ethereum investigation is important, but it is not a cure for the numerous blockchain developers, technology providers, and industry participants who have suffered under the SEC’s illegal and aggressive cryptocurrency enforcement regime.”

The SEC abandons Ethereum, but continues the case against Ripple: the 100 million dollar fine 

One of the cryptocurrency companies still in the eye of the storm is Ripple, with the SEC motivated to classify XRP as a security despite a court having refuted this connection last year.

At this moment the Federal Securities and Exchange Commission is asking the company that manages the issuance of the cryptocurrency, for compensation of 102.6 million dollars after reducing the amount from an initial fine set at 2 billion dollars for selling XRP without a license.

Ripple refuses to give in to this bullismo, and has recently proposed a fine of 10 million dollars, citing the agreement with Terraform Labs as justification. However, the SEC has countered that such a low fine “would not meet the purposes of civil penalty laws.”

The regulator has indeed clarified that Terraform Labs has agreed to destroy “the keys to all its securities in crypto assets”, “return a significant amount to investors in those securities”, and remove “two of the board members in command at the time of the violations”.

As stated by the SEC itself:

“Ripple also confronts the dimension of the sanction of Terraform with the amount of the ‘gross sales’ of that defendant, arguing that the Court should impose the same ratio (1.27%). But this is not an apples-to-apples comparison”

In the middle of this debate, last week Judge Phyllis Hamilton dismissed at least the 4 compensation claims in separate class actions, while still keeping the main case alive to label Ripple’s token as an unregistered security.

In particular, Hamilton focused on the fact that Brad Garlinghouse, founder of the accused company, had insistently promoted the currency in 2017 while he himself was proceeding to sell large shares on the market.

Despite Judge Annalisa Torres having previously closed the XRP-security case, now everything seems to be back in the spotlight: the ball is now in the court of the trial, which will decide whether to classify Ripple’s digital currency used for cross-border payments as a financial security.

The SEC is trying to assert itself by instilling fear in the entire digital token industry, in order to “discourage future misconduct in the cryptocurrency sector“.

In the meantime, while the federal agency limits the expansion of the crypto sector with these attempts at destabilization, more and more famous personalities and US celebrities are illegally promoting tokens linked to their name, which inevitably end up causing their investors to lose money.