Who Pushed the SEC to Drop the Ethereum Lawsuit, and Why Is Gary Gensler Still Targeting Ripple (XRP)?

• The SEC has closed its investigation into Ethereum, deciding not to pursue charges that ETH sales were securities transactions.
• The XRP community is outraged, accusing the SEC of double standards and biased treatment.

The U.S. Securities and Exchange Commission (SEC) has officially closed its investigation into Ethereum, marking a significant triumph for developers, technology providers, and industry participants within the cryptocurrency sector. This decision follows a series of regulatory challenges and a lawsuit filed by Ethereum developer Consensys.

SEC Ends Ethereum 2.0 Investigation

Consensys announced on Tuesday that the SEC’s Enforcement Division has concluded its investigation into Ethereum 2.0 without bringing any charges. The company shared the news on Twitter, highlighting that the SEC would not pursue allegations that sales of ETH constituted securities transactions. This development follows the SEC’s approval of Ethereum spot ETFs last month, a move that Consensys argued underscored ETH’s status as a commodity rather than a security.

Laura Brookover, an attorney for Consensys, posted the SEC’s notification letter and the company’s official statement on Twitter. She noted the rapid changes since Consensys filed its lawsuit against the SEC in April, celebrating the end of the investigation after more than a year of scrutiny. However, the SEC’s correspondence included standard language disclaiming that the closure of the investigation should not be interpreted as an exoneration.

Consensys’ Legal Battle with the SEC

In April, Consensys took a proactive stance by filing a lawsuit against the SEC. The lawsuit argued that the SEC was attempting to assert control over the future of cryptocurrency and planned to classify Ethereum as a security. Consensys revealed that the SEC had internally decided on Ethereum’s status a year prior, triggered by a Wells Notice related to Consensys’ MetaMask wallet.

Despite the closure of the Ethereum investigation, Consensys remains committed to its legal battle. The company seeks a declaration that its MetaMask Swaps and Staking services do not violate securities laws. Consensys emphasized that regulatory clarity is essential for growth and innovation within the blockchain industry and criticized the SEC’s approach to crypto regulation.

A big win for Consensys, though questions remain. Does this mean the SEC thinks Consensys’ offers and sales of ETH are not securities transactions and/or that ETH itself is not a security? What will Gensler say if now asked? What is the status of MetaMask and staking?

This is…

— Stuart Alderoty (@s_alderoty) June 19, 2024

Former SEC regulator Christopher Gerold commented on the situation, noting that while the closure of this investigation is significant, it does not preclude future regulatory actions. He pointed out that the SEC has the authority to bring cases anywhere in the country, suggesting that the legal landscape for Ethereum and other cryptocurrencies remains uncertain.

Unequal Treatment of Ethereum and Ripple

Prominent XRP community member Bill Morgan and several analysts have expressed their discontent, accusing the SEC of inconsistent regulatory practices. Morgan argues that the SEC’s leniency towards Ethereum, especially as it nears the approval of a spot ETF, exemplifies a double standard. 

The XRP community’s frustration stems from what it sees as biased treatment by the SEC. Morgan pointed out that the SEC’s recent letter to ConsenSys, clarifying Ethereum’s status, contradicts its aggressive stance against Ripple. He contends that the criteria for classifying tokens remain ambiguously applied, leading to regulatory uncertainty and uneven enforcement.

The swift resolution of Ethereum’s status contrasts sharply with the prolonged investigation into Ripple, prompting scrutiny over regulatory consistency and potential underlying influences. The SEC’s regulatory approach remains under critical examination.

If you're wondering why the SEC concluded its investigation into #Ethereum relatively quickly compared to #Ripple and decided not to classify ETH as a security, but rather as a commodity, here's the explanation.

This outcome was influenced by powerful interests and investments… pic.twitter.com/V3PmImmA0r

— Vandell | Black Swan Capitalist (@vandell33) June 19, 2024