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The SEC has dropped its investigation into whether Ethereum (ETH) is a security. The decision came after the approval of spot ETH ETFs, which further solidified ETH's status as a commodity. Meanwhile, the Justice Department opposed a sentence reduction for former Ethereum developer Virgil Griffith, who violated sanctions on North Korea. In addition to the SEC backing off from Ethereum,, analysts are very optimistic about ETH's future price as they are anticipating major institutional inflows from upcoming ETFs. Additionally, Hashdex proposed a combined BTC and ETH ETF. The SEC now has to approve Hashdex's S-1 application for the proposed ETF.
Ethereum Cleared by SEC
The United States Securities and Exchange Commission (SEC) has decided to drop its investigation into whether Ether (ETH) is a security. Ethereum developer Consensys announced on Jun. 19 that the SEC's Enforcement Division notified them of the closure of its investigation into Ethereum 2.0.
This means that the SEC will not pursue charges alleging that sales of ETH are securities transactions, which is a massive victory for the Ethereum and crypto community.
The SEC’s decision came after a letter from Consensys on Jun. 7 that requested the agency to end its investigation. This happened after the SEC approved spot ETH exchange-traded funds (ETFs) in May, which suggests that ETH was considered a commodity.
Consensys' senior counsel, Laura Brookover, shared the SEC’s response letter that indicates that it does not plan to recommend any enforcement action. The SEC has not yet made a public comment about this new development yet.
Earlier this year, in March, Fortune reported that the SEC issued subpoenas to multiple companies in an attempt to classify ETH as a security. Consensys responded to these actions by suing the SEC in April after receiving a Wells notice indicating that its MetaMask crypto wallet might have violated securities laws.
The lawsuit also alleges that the SEC Chair Gary Gensler and the SEC believed ETH was a security since early 2023, with SEC Division of Enforcement head Gurbir Grewal approving a formal investigation into ETH’s security status on Mar. 28, 2023. Despite the SEC’s recent decision, Consensys' lawsuit against the agency is still ongoing.
U.S. Rejects Reduced Sentence for Ethereum Developer
Meanwhile, the United States Justice Department opposed former Ethereum developer Virgil Griffith's motion to reduce his 2022 sentence for violating sanctions on North Korea. In a Jun. 17 filing in the U.S. District Court for the Southern District of New York, U.S. Attorney Damian Williams argued against reducing Griffith’s sentence to as little as 51 months. Griffith was sentenced to 63 months in prison and fined $100,000 in April of 2022, with an expected release date of January 2026 considering his pre-sentencing detention.
Williams stated that Griffith chose to evade U.S. sanctions to provide services to North Korea, aimed at teaching the use of cryptocurrency and blockchain technology to evade sanctions. Despite knowing North Korea’s human rights abuses and threats against the U.S., Griffith continued to give presentations on these topics at a 2019 conference in Pyongyang. His lawyers claimed he suffered from obsessive-compulsive personality disorder and narcissistic personality disorder, which led to him having an obsession with North Korea.
Prosecutors mentioned that Griffith has been disciplined multiple times during his imprisonment at the Federal Correctional Institution in Milan, Michigan for things like petty theft where he tried to steal soap and tea. They argued that these actions certainly do not warrant any leniency.
Griffith’s legal team requested a sentence reduction based on revised U.S. sentencing guidelines, which could potentially reduce his sentence to a range of 51 to 63 months, making him eligible for release in January of 2025. During his 2022 sentencing, Griffith claimed to be “cured” of his obsession with North Korea, but Judge Kevin Castel was not convinced and pointed out that Griffith seemed to lack a consistent ideology and would manipulate situations for his benefit.
The legal team is expected to respond to the government’s letter within 14 days.
The U.S. Department of Commerce also imposed a 10-year export privilege ban on Griffith which prevents him from engaging in any transactions involving commodities, software, or technology under U.S. export regulations until 2032.
ETH to $10,000?
The potential for Ethereum's price to reach $10,000 is considered the most "asymmetric bet" in the current crypto market, according to popular analyst Tyler. Despite the fact that ETH's price is currently trading just below $3,600 and is still struggling to break the $4,000 psychological resistance, there is optimism about its future performance.
Institutional inflows from the anticipated launch of the first spot Ether exchange-traded funds (ETFs) could greatly boost ETH’s price. These ETFs are expected to start trading by Jul. 2, according to Bloomberg analyst Eric Balchunas. On the other hand, SEC Chair Gary Gensler suggested that the ETFs might launch by the end of September. The impact of ETF inflows on Bitcoin, where ETFs accounted for about 75% of new investment during its rise above $50,000, could serve as a precedent for ETH.
Additionally, Ether's supply on cryptocurrency exchanges has dropped to an eight-year low. This could potentially lead to a supply squeeze that might push up ETH prices even more. Analyst Quinten François also took note of this low supply and the anticipated institutional demand from ETH ETFs, suggesting it could lead to huge upward momentum for ETH’s price.
Now that the SEC has decided to back off from Ethereum, things are really looking good for ETH’s future.
Cryptos Like BTC & ETH Boost Portfolio Returns
Exposure to BTC and ETH, the two largest cryptocurrencies, can seriously boost the returns of traditional investment portfolios, according to Philippe Meyer, head of digital and blockchain solutions at BBVA. At the Web3 Corporate Innovation Day, Meyer stated that adding even a small portion of digital assets like BTC or ETH, typically between 3% to 5% of a portfolio, has proven to "greatly improve" the return on investment (ROI).
Meyer believes that a 3%–5% allocation in cryptocurrency can make a big difference in portfolio performance, and also encouraged investors interested in higher returns to consider this asset class.
It is, however, important to take into consideration that Meyer made his remarks during a bullish phase in the crypto market, with BTC’s price being up by more than 147% in the past year, according to CoinMarketCap data.
Hashdex Proposes Combined BTC and ETH ETF
Meanwhile, Hashdex has proposed a combined spot Bitcoin and Ether ETF on the Nasdaq exchange, according to a Jun. 18 filing with the SEC. The ETF would balance the crypto assets according to their market capitalizations, with 70.54% allocated to Bitcoin and 29.46% to Ethereum. It will passively track the Nasdaq Crypto US Settlement Price Index without attempting to outperform it.
According to analyst James Seyffart, a combined-asset ETF "makes a lot of sense." The ETF will not include other spot assets besides BTC and ETH, but if other crypto assets become eligible, the fund will adjust its strategy accordingly.
Eligibility for inclusion requires assets to be listed on a U.S.-regulated digital asset trading platform or serve as the underlying asset for a derivative on a U.S.-regulated derivatives platform. Coinbase and BitGo will act as custodians for the BTC and ETH assets, and will offer segregated accounts for individual shareholders.
Hashdex is a Brazil-based investment manager, and previously filed with the SEC for an ETH ETF but later withdrew the application. Its indexed crypto ETF in Brazil includes nine coins, with BTC and ETH comprising nearly 92% of its value. In the U.S., Hashdex's spot BTC ETF includes up to 5% BTC futures contracts and acquires the spot asset on the CME.
The SEC now has to approve Hashdex's S-1 application for the proposed ETF. The agency has 90 days to respond to the 19-b4 filing, during which it will accept public comments. A final decision from the SEC is expected by March of 2025.
