U.S. SEC Verdict: Classifies Ethereum (ETH) as a Commodity, Not a Security

In what is a key ruling for U.S. jurisdiction, the U.S. Securities and Exchange Commission (SEC) has recently announced that Ethereum (ETH) will be classified as a commodity – and not a security

This classification lays a new precedent for the treatment of cryptocurrencies in regulation- especially Ethereum, which ranks number two by market capitalization. The ruling came in parallel with the news of a successful Ethereum ETF, which could pave the way for increased traditional investment into all the crypto space.

The determination of the SEC not only clears up what Ethereum is, but also acts as precedent and could therefore influence future perspectives on classification for other digital assets. 

Per a thorough analysis from Foley and Lardner, one of the country’s top law firms, this classification could possibly offer other emerging crypto assets that initially begin forming as securities with an open road to transition into commodities. That fluidity in categorization reflects the changing nature of crypto regulation and how authorities are accommodating these new asset classes.

Interesting perspective from law firm @FoleyandLardner…

“The most important development from approval order was SEC heavily implying ETH is commodity & not security.”

“Approval order demonstrates crypto assets can start life as security & transition to commodity over time.” pic.twitter.com/uwIhzApDmp

— Nate Geraci (@NateGeraci) July 21, 2024

Implications of the SEC’s Decision on Crypto Regulation

Nate Geraci, President of The ETF Store spotlighted important parts from the Foley and Lardner document on social media platform X emphasizing how consequential the SEC’s decision was. 

In approving Ethereum-based ETFs under rules applicable to commodity-based trust shares, the SEC notably sidestepped the security frameworks. This is part of a wider recognition for Ethereum as operating within the decentralized nature and role more akin to commodities i.e. gold, oil rather than traditional securities.

The implications are broader for how this might impact the perception and regulation of other cryptocurrencies. It implies that, as blockchain technology grows and is more widely adopted in the global marketplace its classification can change depending on how it performs. The Foley and Lardner document also noted that the SEC’s decision was based on commodity-but settled law, reinforcing Ethereum as a commodity.

Furthermore, the approval of Ethereum ETFs without the necessity of complying with the Investment Company Act of 1940, which governs securities, paves the way for simpler regulatory engagements for future crypto-based funds. This could expedite the introduction of similar financial products in the market, enhancing liquidity and accessibility for a wider range of investors. 

Moreover, the clarification offered by the SEC also brings a degree of legal clarity to Ethereum’s founders and those working on other projects that have decentralized foundations, who might otherwise be worried about facing securities classifications.