SEC Settlement with eToro Indicates Ethereum is Not Classified as a Security

The Securities and Exchange Commission (SEC) recently reached a settlement with eToro, an Israel-based crypto company, requiring them to pay $1.5 million in fines for operating as an unregistered trading platform. This development is part of the SEC’s ongoing efforts to regulate the crypto sector. However, the eToro settlement contains a significant detail that indicates a shift in the agency’s stance towards Ethereum, the second most popular blockchain.

The settlement specifies that the SEC will no longer offer crypto trading services except for three digital assets: Bitcoin, Bitcoin Cash, and Ethereum. While Bitcoin and Bitcoin Cash have been classified as commodities rather than securities by previous regulators, there has been uncertainty regarding the regulatory status of Ethereum. The approval of Ethereum ETFs in July, coupled with the recent settlement, suggests that the SEC may be easing its position on Ethereum’s classification as a security.

Under the leadership of Chair Gary Gensler, who assumed office in early 2021, the SEC has intensified its scrutiny of the crypto industry. Following the collapse of prominent projects like Terraform Labs and FTX in 2022, the SEC has pursued legal action against various sectors within the crypto space, including exchanges such as Coinbase and Binance, as well as DeFi and NFT projects.

A central issue in the SEC’s enforcement actions is whether cryptocurrencies should be treated as securities or commodities. While Bitcoin is widely considered decentralized and thus not subject to SEC oversight, Gensler has advocated for most cryptocurrencies to be regulated as securities. Despite lawsuits naming Solana and the stablecoin BUSD as securities, the SEC has refrained from definitively classifying Ethereum as such.

The SEC’s ambiguity regarding Ethereum has sparked debate within the industry, with companies like Prometheum seeking clarity on the regulatory landscape. While there were indications earlier this year that the SEC was leaning towards classifying Ethereum as a security, recent events, including the approval of Ethereum ETFs, suggest a shift in the agency’s position.

By penalizing eToro for offering trading services for assets considered securities while allowing Ethereum trading to continue, the SEC appears to be acknowledging that Ethereum may not warrant security status, at least without staking services. eToro’s CEO, Yoni Assia, expressed minimal concern over the settlement’s impact on the company’s global operations, emphasizing a commitment to innovation in their US business.

The SEC declined to provide additional comments on the matter, underscoring the evolving regulatory landscape surrounding cryptocurrencies. This development signifies a potential shift in the SEC’s approach to Ethereum and highlights the ongoing debate over the classification of digital assets within the crypto industry.