The crypto industry is embroiled in a fight against the Securities and Exchange Commission (SEC). Yet, that fight was just taken to the next level as Consensys, a major player in the Ethereum ecosystem, filed a lawsuit against the agency in Texas federal court. The Ethereum company goes so far as to ask the SEC to state that Ether is not a security. The terse 34-page filing calls SEC actions to oversee Ethereum illegal and an “unlawful seizure of authority” over ETH, as well as a threat to destroy the US Ethereum industry altogether.
Consensys’ lawsuit could be designed to overshadow pending SEC action against the Ethereum ecosystem. Rumors swirled over the past month-and-a-half that the SEC was investigating the Ethereum Foundation, employees of which reportedly received subpoena requests. Either way, the Ethereum ecosystem is not going to play games with the SEC and is looking to gain the same legitimacy Bitcoin has earned as of late in the eyes of regulators and the mainstream financial system.
The crypto industry of course doesn’t have to be fighting this battle against the SEC in courts. Congress could have enacted fair laws by now. Furthermore, as head of the SEC, Gary Gensler could approach crypto in a balanced fashion which supports innovation while protecting investors. He could echo the statements of former SEC chairman Jay Clayton that Ethereum is not a security because it has become sufficiently decentralized. He could side with the Commodities Futures Trading Commision (CFTC) which views Ethereum as a commodity.
Instead, Gensler has moved to categorize ETH as a security, despite the fact that a damning 2018 video where he tells hedge funds that Ethereum is not a security. Since Gensler chose a draconian approach to crypto, the crypto industry has no choice but to seek legal clarity from the court system, especially if Congress won’t work towards a resolution.
The increasing legal battles come on the heels of the SEC losing key cases in recent months as the judicial branch has proven a key check and balance in the SEC’s battle versus crypto. One judge said the SEC had been acting arbitrarily and capriciously when it denied an application for a Bitcoin ETF. Since then, Gensler did not shift course. Instead, he has taken on leading crypto companies Coinbase and Uniswap which coincide with a plethora of subpoenas sent to firms and developers in regards to their work with the Ethereum Foundation.
Gensler’s approach to crypto appears to be an attempt to slow the overall growth of crypto as well as groundwork to ultimately deny pending applications for spot Ethereum ETFs. The SEC is expected to rule in May on Ethereum ETFs. That puts the agency in a tricky spot, as well, because if it denied an Ethereum ETF, Fidelity, Blackrock and others could sue the SEC.
Consensys filing its lawsuit in Texas is in line with an aggressive strategy on the part of the crypto industry to fight the SEC in the U.S. Court of Appeals for the Fifth Circuit, which has a history of favorable judgments on the side of industry versus the SEC than other courts. Consensys and the wider crypto industry seem prepared to take this to the Supreme Court. And they should. Much is on the line. An aggressive approach seems necessary.
Consensys fights so that Ethereum remains a vibrant and indispensable blockchain ecosystem where developers, market participants, and institutions can push the boundaries of what’s possible on the world’s second largest blockchain. Consensys is right. The SEC should never be permitted to expand its jurisdiction of its own accord, including over the internet, which it has attempted to do by declaring ETH a security.
Alongside Consensys and the Ethereum ecosystem, there is a long line of blockchain projects facing SEC actions, including ShapeShift, Ripple, LBRY, Coinbase, Hex, Pulsechain, PulseX, and many others. Gensler’s SEC has failed to provide a budding industry with clear rules so that entrepreneurs can comply with regulations.
Congress should be acting in the interest of free enterprise, not against it. Crypto is left with no choice but seek clarity from the courts.
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