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Ethereum Under Fire: Investigation, SEC Scrutiny Cloud ETF Approvals

The investigation coincides with potential classification of ETH as a security and upcoming deadlines for regulatory decisions.

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Ethereum faces a perfect storm of uncertainty as a confidential investigation by an unknown state authority coincides with the SEC's ongoing efforts to classify Ether (ETH) as a security.

According to a Coindesk report on Wednesday, the Zug, Switzerland based Ethereum Foundation recently confirmed they received a confidential inquiry from a yet-to-be-identified "state authority." This information came to light in late February 2024 through a commit on the Ethereum Foundation's GitHub repository.

While the foundation hasn't disclosed the source, speculation swirls around a potential probe by a Swiss regulator or, more pointedly, the US Securities and Exchange Commission (SEC). The exact nature and focus of the investigation also remain shrouded in mystery, though the timing coincides with an upcoming deadline for the SEC on deciding about ETH exchange-traded funds (ETFs).

The Ethereum Foundation's website previously stated they had never been contacted by any agency requiring confidentiality. This statement has since been removed.

Pending ETF approvals

According to a Fortune report, released after the Coindesk article, the SEC is particularly interested in Ethereum's transition to a proof-of-stake model in September 2022. This shift could be a key factor in their attempt to classify ETH as a security.

Such a classification would have far-reaching consequences for Ethereum's regulatory landscape, as stricter regulations could be imposed, impacting the entire Ethereum ecosystem. It could also impact the fate of ETH ETFs, as the SEC's stance on ETH as a security throws a major hurdle in the approval process for pending Ethereum ETF applications. Delays or even rejections are now a distinct possibility.

A cloud of uncertainly now hangs over Ethererum. An ETH security classification could lead to tighter regulations, potentially impacting the price and overall market performance of the cryptocurrency. Additionally, the status of pending ETH ETF applications is likely to remain on hold or face outright rejection until the investigation concludes.

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