Ethereum 2.0
Ethereum 2.0 is an extensive upgrade of the Ethereum blockchain network that aims to significantly improve the scalability, safety and sustainability of the platform. The transition officially took place in September 2022. One of the most important changes that Ethereum 2.0 entails was the transition from the proof of work (POW) consensus mechanism to a proof of stake (POS) system. This shift to POS means that validators, instead of miners, approve transactions and add new blocks to the blockchain by stopping part of their ether (ETH). This new system drastically reduces energy consumption, making Ethereum more environmentally friendly. The SEC investigation related to Ethereum 2.0.
Consventional court
Consensys, the company behind, among others, the Metamask Wallet, in April 2024 he filed a lawsuit against the SEC. The reason for this was a " Wells Notice " that received Consensys, in which the SEC indicated that the company might undergo enforcement measures due to alleged violations of federal securities laws with their Metamask Swaps and Metamask strike products. A " Wells Notice" is a formal warning from the American SEC that may be considered legal action against an individual or company due to alleged law violations.
On the other hand, Consensys argues that the SEC's efforts to regulate ETH as a security are contrary to previous statements from both the SEC and the Commodity Futures Trading Commission (CFTC), which have recognized ETH as a commodity. The aim is to force the SEC to provide clarity about the regulation of ETH and to protect the position of Ethereum in the wider financial market. On June 18, 2024, the lawsuit underwent an important turn. The SEC seems to have indicated its initial position to stop further investigations. See the official statement from Consensys: click here .
Approval Spot Ether ETFs
The approval of the Ether Exchange-Traded Funds (ETFs) due to the SEC in May is also significant because this also implies that the sec consideres as a commodity and not as a security. This classification is important because commodities, such as raw materials and other physical assets, fall under different regulatory frameworks than securities, that represent financial investments.
The SEC has implicitly recognized Ether as commodity by the approval of ether futures and spot ETFs. This also follows from the historical position of the Commodity Futures Trading Commission (CFTC), which Ether has long regards commodity. Recent approvals strengthen this classification and offer more clarity to investors and market participants. The decision to classify Ether as commodity also helps to reduce the legal uncertainty surrounding the regulation of Ether and other digital assets. It offers a more stable and more predictable regulatory framework, which is essential for the further growth and adoption of blockchain technology and digital assets.
The Ether ETFs make it easier for institutional and private investors to get exposure to Ether (ETH) without the technical challenges of buying and storing the digital assets directly. An ETF is an investment fund that is traded on the stock exchange and that follows the performance of a specific index, sector, raw material or other asset. In the case of ether ETFs, these funds follow the prize of Ether, the second largest digital assets after Bitcoin. The approval of ether ETFs by the SEC is a recognition of adulthood and the importance of Ether in the financial markets. Various major financial institutions have submitted applications for the launch of Ether ETFs. Among the prominent applicants are:
BlackRock: one of the largest asset managers in the world, who already has considerable experience with investment funds and ETFs.
Vaneck: known for his innovative approaches of ETFs and his focus on emerging markets and technologies.
Grayscale: A leading investment company that specializes in digital assets, best known for its bitcoin trust.
Fidelity: one of the largest financial service providers in the world, with a strong focus on pension and investment funds.
Ark Invest: known for its disruptive innovation ETFs and the vision of CEO Cathie Wood on the future of technology and finance.
These institutions have been approved for their spot ETH ETF proposals and are now waiting for the final approval of their S-1 registration statements by the SEC. These ETFs are expected to go live in the summer of 2024
Political interference through the upcoming US presidential elections
The approval of Ether ETFs and the broader discussion about the regulation of digital assets come at a politically charged moment, with the US presidential elections in prospect. Various political forces have a variety of views on the role of digital assets in the economy and its regulation. This political climate can influence future laws and regulations and the attitude of supervisors such as the SEC and the CFTC.
Donald Trump has made a remarkable shift in his position with regard to Digital Assets. Where he previously labeled Bitcoin and other digital assets as a "scam" and strongly preferred the US dollar, he now openly embraces the crypto community. Trump has spoken out against the strict regulations of the BIDEN administration and promises less stringent supervision when he is re-elected. He states that the current hostile attitude of the Democrats towards crypto leads to an outflow of the US industry. Trump emphasizes the need to maintain innovation within the American boundaries by offering a friendlier regulatory framework.
Joe Biden, on the other hand, has followed a more moderate approach. His administration has taken steps to investigate the benefits and risks of digital assets and has considered the possibility of an American Central Bank Digital Currency (CBDC). Although his approach is seen by some market participants as hostile, Biden points to the need for consumer protection and the stability of the financial system. His Executive Order from 2022 emphasizes the importance of research into and regulating digital assets to prevent abuse and to guarantee the integrity of the market.
The attitude to Digital Assets can play a crucial role in the 2024 elections, in which both candidates try to address the growing demography of cryptobeleggers. While Trump profiles himself as the defender of the crypto industry against regulatory overreach, Biden focuses on a balanced approach that supports innovation but also protects consumers. The final regulations that result from these elections will probably have considerable consequences for the future of digital assets in the US.
This article was compiled by the BitStaeteInvestment Team. If you want to know more about the professional investing in Digital Assets, please contact us.
