ETH is a Security?! The SEC vs. Ethereum Explained!!

Summary

The SEC's investigation into Ethereum's ecosystem raises concerns about the potential classification of ETH as a security, which could lead to significant legal and market repercussions. The video discusses the criteria for a security under the Howey test, the implications of Ethereum's transition from proof of work to proof of stake, and the potential impact on the broader crypto market. It also explores the SEC's enforcement strategies and the political motivations behind them, suggesting a possible enforcement action against Ethereum that could have far-reaching consequences for the industry.

Takeaways

• 🔍 The SEC is reportedly investigating entities within Ethereum's ecosystem, which could have significant implications for the cryptocurrency market if the regulator decides to sue.
• 📜 The SEC considers an asset to be a security based on the Howey Test, which has four criteria: investment of money, common enterprise, expectation of profit, and profit derived from third-party efforts.
• 🤔 Ethereum's status as a security is complex due to its transition from proof of work to proof of stake and the decentralization of its network, making it difficult to identify a single party responsible for market expectations.
• 💡 Former SEC director Bill Hinman's statement in 2018 that Ethereum is not a security due to its decentralization may not hold in the current regulatory climate under Gary Gensler's leadership.
• 🌪️ The SEC's potential lawsuit against Ethereum could lead to large fines, delistings from exchanges, and a catastrophic impact on the broader crypto market.
• 💼 The SEC's actions are influenced by its connections to traditional financial institutions, which view cryptocurrencies like Ethereum as competitors to their control over the financial system.
• 🔄 The shift in Ethereum's status from the Shanghai upgrade, allowing for staking and yield earning, may have reset its legal standing, making it vulnerable to SEC scrutiny as a security.
• 📈 The SEC's enforcement actions are led by the Division of Enforcement, which may pursue lawsuits against crypto projects regardless of the overall stance of the SEC Commissioners.
• 🚨 The pre-Wells investigation phase can last an indefinite period, and the issuance of a Wells notice to Ethereum entities could signal a high likelihood of a lawsuit and negatively impact the crypto market.
• 🌐 A potential SEC lawsuit against Ethereum could lead to an exodus of the crypto industry from the United States, should the SEC be successful in its legal actions.

Q & A

What is the role of the SEC in relation to assets and securities?

The Securities and Exchange Commission (SEC) is a US regulator tasked with creating and enforcing laws related to assets it considers to be Securities. Securities include things like stocks, bonds, and some cryptocurrencies.

What are the criteria for an asset to be considered a security according to the SEC?

The SEC considers an asset to be a security if it meets the four criteria of the Howey test. These criteria include an investment of money, in a common enterprise, with an expectation of profit, coming from the efforts of a third party.

How does the SEC's stance on Ethereum's status as a security affect the crypto market?

If the SEC decides to sue entities within Ethereum's ecosystem, it could have a devastating effect on Ethereum's price and a catastrophic impact on the rest of the crypto market, as it could lead to large fines and delistings from exchanges.

What did former SEC director Bill Hinman say about Ethereum's status as a security in 2018?

In 2018, former SEC director Bill Hinman stated that Ethereum is not a security because it had become sufficiently decentralized, meaning there were many entities involved, making it hard to identify which ones were creating the expectation of profit.

What is the significance of the Chappelleta upgrade for Ethereum and its potential status as a security?

The Chappelleta upgrade allowed Ethereum validators to claim staking rewards and unstake their ETH. This change in Ethereum's qualities as an asset could potentially make it subject to the SEC's scrutiny as a security, as it now involves staking and yielding, which were not in practice prior to the upgrade.

What are the stages of an SEC lawsuit?

The stages of an SEC lawsuit include the pre-Wells period, where the SEC investigates potential violations; the Wells notice, where the SEC sends an official letter explaining the reasons for a potential lawsuit; and the Wells submission, where the investigated entities have 30 days to issue a response to the Wells notice.

What is the role of the SEC's Division of Enforcement in crypto regulation?

The SEC's Division of Enforcement, led by a commissioner, is responsible for initiating lawsuits and enforcement actions against crypto projects. This division plays a significant role in how the SEC approaches and regulates the crypto industry.

What could be the potential impact of an SEC lawsuit against Ethereum on the broader crypto market?

An SEC lawsuit against Ethereum could result in delistings of ETH from exchanges and a significant drop in its price. It could also cause an implosion in Ethereum's DeFi ecosystem and potentially lead to the crypto industry leaving the United States if the SEC were to win the lawsuit.

How might the SEC's actions affect the development of a spot Ethereum ETF?

The SEC's scrutiny of Ethereum and potential lawsuit could lower the chances of a spot Ethereum ETF being approved, as it might make investors and regulators more cautious about approving such financial products related to Ethereum.

What is the significance of the SEC's largest whistleblower award in relation to the investigation into Ethereum?

The announcement of the SEC's largest whistleblower award, which occurred shortly before the news of the investigation into Ethereum's ecosystem, might indicate a more aggressive stance by the SEC in its enforcement actions and could potentially influence the outcome of the investigation.

How might the political motivations of SEC officials influence the timing and direction of enforcement actions?

SEC officials, who may have political ambitions, could time enforcement actions to align with their career goals or to appeal to anti-crypto politicians. This could result in more aggressive actions against Ethereum or other crypto projects, particularly around key political timelines such as elections.

Outlines

00:00

🔍 SEC's Investigation into Ethereum's Ecosystem

The video begins by discussing the SEC's investigation into entities within Ethereum's ecosystem, highlighting the potential implications for Ethereum (ETH) and the wider crypto market. It explains the SEC's criteria for identifying securities and how Ethereum's status may have changed with the recent network upgrades, leading to the possibility that ETH could be considered a security under the SEC's scrutiny.

05:02

🤔 The Howey Test and Ethereum's Classification

This section delves into the Howey Test, which the SEC uses to determine if an asset is a security. It outlines the four criteria and explains how most cryptocurrencies, including Ethereum, meet these criteria. The discussion focuses on the fourth criterion, which involves the expectation of profit from a third party's efforts, and how this could apply to Ethereum and its development community.

10:03

📉 Potential Impact on Ethereum and the Crypto Market

The paragraph discusses the potential consequences if the SEC decides to sue entities within Ethereum's ecosystem, emphasizing the risk of devastating effects on ETH's price and a broader impact on the crypto market. It also touches on the historical context, including the SEC's stance on Ethereum under previous leadership, and the implications of the recent shift in the SEC's approach to crypto regulations.

15:06

🤝 The Tug-of-War Between Mega Banks and Asset Managers

This part of the script explores the dynamic between traditional financial institutions and asset managers in the context of the SEC's actions. It suggests that asset managers, who stand to profit from investing in technologies that disrupt the traditional financial system, may be encouraging competition with banks. The video also speculates on the motivations behind the SEC's investigation into Ethereum and the potential influence of the financial industry on regulatory decisions.

20:08

🚨 The Significance of Ethereum's Network Upgrades

The script examines the significance of Ethereum's network upgrades, particularly the transition from Proof of Work to Proof of Stake, and how these changes might affect the SEC's view on Ethereum's status as a security. It discusses the potential reasons behind the SEC's interest in Ethereum, including the possibility that the SEC sees the post-upgrade Ethereum as a new asset with different legal implications.

25:10

📜 The SEC's Enforcement Process

This section outlines the SEC's enforcement process, specifically the pre-litigation stages, including the pre-Wells investigation phase and the Wells notice. It explains the potential timeline and implications of these stages for entities under investigation, as well as the likelihood of a lawsuit following a Wells notice. The discussion also touches on the SEC's recent efforts to expedite this process.

🏛️ The Political and Regulatory Landscape

The final paragraph discusses the political motivations behind the SEC's potential actions against Ethereum, suggesting that the enforcement division's leadership may have personal ambitions that influence their regulatory approach. It speculates on the timing of a possible SEC enforcement action and the potential impact on the crypto market, the SEC's reputation, and the future of the crypto industry in the United States.

Keywords

💡SEC

The Securities and Exchange Commission (SEC) is a US regulator responsible for creating and enforcing laws related to assets it considers to be Securities. In the context of the video, the SEC is investigating entities within the Ethereum ecosystem, potentially viewing Ether (ETH) as a security, which could have significant legal and financial implications for the cryptocurrency market.

💡Howey Test

The Howey Test is a legal test used to determine whether a transaction qualifies as an investment contract and therefore a security. It involves four criteria: an investment of money, in a common enterprise, with an expectation of profit, primarily from the efforts of others. In the video, the Howey Test is used to analyze whether cryptocurrencies, including Ethereum, should be classified as securities under SEC regulations.

💡Decentralization

Decentralization refers to the distribution of functions, powers, people, or resources away from a central location or authority. In the context of the video, Ethereum's decentralization is a key factor in the debate over whether it should be considered a security by the SEC. The more decentralized a cryptocurrency is, the harder it is to attribute the expectation of profit to a specific third party, which is one of the criteria of the Howey Test.

💡Cryptocurrency

Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates on decentralized networks, such as blockchain technology. The video discusses the regulatory challenges cryptocurrencies face, particularly in relation to the SEC's scrutiny and the classification of certain digital assets as securities.

💡ETF

An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product that is traded on stock exchanges, much like a stock. In the context of the video, a spot Ethereum ETF would track the price of Ethereum directly. The SEC's investigation into Ethereum could impact the approval and launch of such an ETF, as regulatory clarity is often required for new financial products.

💡Delisting

Delisting refers to the removal of a security or other asset from the listings of an exchange, where it is no longer traded. In the context of the video, if the SEC were to classify Ethereum as a security and pursue legal action, it could result in Ethereum and other affected cryptocurrencies being delisted from exchanges, which would significantly impact their accessibility and value.

💡Regulation

Regulation refers to the rules and restrictions set by a governing body to control the behavior of individuals or organizations in a specific area. In the video, the SEC's potential regulation of Ethereum and other cryptocurrencies is a central theme, with discussions on how increased regulatory scrutiny could affect the cryptocurrency market and its participants.

💡Proof of Work

Proof of Work (PoW) is a consensus algorithm used by many cryptocurrencies, including Ethereum prior to its upgrade, where miners solve complex mathematical problems to validate transactions and add them to the blockchain. The video discusses the transition of Ethereum from PoW to Proof of Stake, which may have implications for its legal classification as a security.

💡Proof of Stake

Proof of Stake (PoS) is a consensus algorithm used by some cryptocurrencies, including Ethereum after its upgrade, where validators are chosen to create new blocks and validate transactions based on the amount of cryptocurrency they hold and are willing to 'stake' as collateral. This is in contrast to Proof of Work, which relies on computational power. The video suggests that Ethereum's shift to PoS and the introduction of staking rewards may have changed its legal standing in the eyes of the SEC, potentially classifying it as a security.

💡ICO

Initial Coin Offering (ICO) is a fundraising mechanism used by startups to raise capital by selling a portion of their cryptocurrency to early investors. ICOs have been a point of regulatory scrutiny because they often involve the sale of securities without registering with the SEC. In the video, the fact that Ethereum's initial supply was allocated via an ICO is mentioned as a factor that could contribute to the SEC's consideration of Ethereum as a security.

💡Gary Gensler

Gary Gensler is the Chairman of the SEC. He has been a significant figure in the regulatory landscape of cryptocurrencies, with a background in both government and finance, having spent most of his career at Goldman Sachs. The video discusses his potential motivations and the impact of his actions on the cryptocurrency market, including the investigation into Ethereum and its ecosystem.

Highlights

The SEC is reportedly investigating entities within Ethereum's ecosystem, potentially considering Ethereum as a security.

If the SEC decides to sue these entities, it could have a devastating effect on Ethereum's price and a catastrophic impact on the crypto market.

The SEC considers an asset to be a security if it meets the four criteria of the Howey test, focusing on investment, common enterprise, expectation of profit, and third-party efforts.

Former SEC director Bill Hinman stated in 2018 that Ethereum is not a security due to its sufficient decentralization.

The SEC's stance on Ethereum's status as a security has been unclear since Gary Gensler became chairman, with some believing the threshold for what counts as a security has shifted.

The implicit and explicit purpose of cryptocurrency is to replace the traditional financial system, making entities like Ethereum major competitors to commercial banks and central banks.

The SEC's investigation into Ethereum's ecosystem is significant as it foreshadows a potential lawsuit where the SEC alleges Ethereum is a security.

The SEC's December 2020 lawsuit against Ripple and its executives provides insight into the three stages of an SEC lawsuit: pre-Wells, Wells notice, and the actual lawsuit.

Ethereum's status as an asset changed after the Shanghai upgrade, making it possible to unstake and earn a yield, which could attract the SEC's attention.

The SEC expanded its crypto unit and announced its largest whistleblower award shortly before the Shanghai upgrade, suggesting a strategic move in anticipation of changes to Ethereum.

Comments from Ethereum's co-founders about Ethereum not being a security may not protect it in the event of a crackdown, as the SEC deals with two different Ethereums.

The SEC's division of enforcement, led by Gerri Gensler, is likely to decide on whether to move forward with a lawsuit against Ethereum entities.

Gerri Gensler's lack of understanding of cryptocurrency and his goal to increase enforcement efforts suggest a higher chance of the SEC suing Ethereum entities.

The SEC's potential lawsuit against Ethereum could result in delisting from exchanges and negatively impact Ethereum's Defi ecosystem.

The United States could be the biggest loser if the SEC successfully sues Ethereum, as the crypto industry might leave the country.

The SEC's scrutiny of Ethereum and potential enforcement actions could happen before crucial decisions on a spot Ethereum ETF or closer to the November election.

The outcome of the SEC's cases against Coinbase and Binance could influence how exchanges handle listings in light of potential regulatory actions against Ethereum.

A potential SEC lawsuit against Ethereum would be a real tail risk, causing an implosion in its Defi ecosystem and possibly leading to a mass exodus of the crypto industry from the United States.

Transcripts

is eth a security the SEC seems to think

so that's because the regulator is

reportedly investigating entities in

ethereum's ecosystem if the SEC decides

to sue these entities it could have a

devastating effect on eth's price and a

catastrophic impact on the rest of

crypto that's why today we're going to

explain exactly what the SEC is when it

started investigating ethereum whether e

is a security according to its criteria

and what this could all mean for the

crypto

Market the Securities and Exchange

Commission or SEC is a US regulator

that's tasked with creating and

enforcing laws related to assets it

considers to be

Securities now Securities include things

like stocks bonds and yes even some

cryptocurrencies the SEC considers an

asset to be a security if it meets the

four criteria of the hoe test these

criteria are an investment of money in a

common Enterprise with an expectation of

profit coming from the efforts of a

third party so in plain English an asset

is a security if you buy it using money

if its price action is the same for

everyone who bought it if everyone who

bought is expecting a profit and if this

expectation of profit is coming from an

individual or an institution if an asset

meets all four criteria of the howy test

then the third parties involved must

register that asset with the SEC and

provide regular disclosures failure to

do this prior to issuing the asset

results in large fines and delistings

from any exchanges it's trading on as we

have seen with some cryptos now

obviously almost every single

cryptocurrency meets the first three

criteria of the Harry test you buy them

using money their price action is the

same for everyone and everyone is

expecting to make a profit so it's

ultimately the fourth Criterion that

therefore determines whether or not a

crypto is a security that's because it's

not always possible to identify a third

party that's creating this expectation

of profit BTC is an easy example here

you would be hard pressed to name an

individual or institution that's causing

you to expect that btc's price will go

up Satoshi nakamoto's unlikely return

not withstanding of course this is not

the case for most cryptocurrencies most

cryptos do have a small group of

individuals or institutions that are

creating the expectation of profit

however a few cryptos fall somewhere in

the middle and eth is arguably one of

them now here is where things get

interesting in 2018 former SEC director

Bill Hinman said that eth is not a

security because ethereum had become

quote sufficiently decentralized in

other words there are so many entities

involved in ethereum that it's hard to

say which ones are creating the

expectation of profit this is

interesting because it implies that

there's a point at which a crypto stops

being a security in the eyes of the SEC

the problem is that the SEC has never

specified where this threshold is many

hoped to get this Clarity when Gary

gendler became chairman of the SEC in

April 2021 but the clarity never came

instead the SEC seems to have moved the

goalposts for what counts as a security

ever since Gary became king if you

watched our first in-depth video about

the SEC you'll know this is isn't

surprising the regulator has close

connections to Big Banks and Gary spent

most of his career at Goldman Sachs for

Contex the implicit and explicit purpose

of cryptocurrency is to replace the

traditional Financial system logically

this means replacing the commercial

Banks and the central banks that

underpin the traditional Financial

system with cryptos in this sense

ethereum is their biggest competitor

what's fascinating though is that asset

managers appear to be encouraging this

competition if you've been keeping up

with our coverage of crypto regulations

you'll note that there appears to be a

tug-of war between Mega Banks and asset

managers behind the scenes at Regulatory

Agencies like the SEC this is

fascinating because the imperative of

asset managers is to make as much money

as possible investing in Tech that's

designed to replace the financial system

is potentially very profitable to say

that least but it goes against the

imperative of the banks which is to

maintain control of the financial system

this is why it's probably not a

coincidence that black Croc announced

that it had launched a tokenized fund on

ethereum just a few hours after it was

reported that the SEC was investigating

entities in ethereum's ecosystem you

could say it was a sort of middle finger

to the mega Banks and by the way if

you're enjoying the video so far be sure

to smash that like button button to help

others find it and make sure to

subscribe to the channel and ping the

notification Bell so you can find the

next

[Music]

one get in

[Music]

here take a seat

sir go on so tell me about these

anxieties you've been experiencing when

did they first manifest themselves well

you know I I think they first started

when I got into crypto I I started to

worry about all kinds of stuff such as

well I became anxious that I was

spending you know way too much on

Exchange fees like every time I made a

trade boom more precious crypto G and I

I I I felt like I was missing out in

other ways too what other ways well for

instance why didn't I get a a a sign up

bonus when I registered on an exchange I

mean come on they they should be

welcoming me with open arms that's a

common Fe for many people in crypto yeah

go figure and I kept getting told to buy

a hardware wallet to keep my crypto safe

but you know some of those things ain't

cheap huh and what's the guy to do well

you know there's a cure for those

concerns you mean medication no I mean

like the coin Bureau deals page it is

tradeing fee discounts on top crypto

exchanges it offers sign up bonuses of

up to

$60,000 and it has discounts on the best

hardware wallets too you mean I I just

go to the coin Bureau deals page and I'm

C yeah absolutely just head down using

the link down below okay I'm on my

[Music]

way now in case it wasn't clear enough

the sec's investigation of entities in

ethereum's ecosystem is significant

because it foreshadows a lawsuit wherein

the SEC alleges that eth is a security

and that these entities therefore broke

Securities laws the result would be an

enormous fine and delistings from us

exchanges to be clear the SEC has not

sued any entities in ethereum's

ecosystem at least not yet it's possible

that the investigation will turn up

empty-handed and that no lawsuit will be

filed however it is safe to assume that

the SEC wouldn't have begun

investigating if it didn't believe there

was something to find this means that

there is a risk that the SEC will will

sue at some point knowing how why and

when this could happen requires

understanding how the sec's lawsuits

work fortunately the sec's December 2020

lawsuit against Ripple and its

Executives gives us the info we need if

you watched our first video about the

sec's lawsuit against Ripple and Co you

may recall that there are three stages

to an SEC lawsuit the first stage is

called pre-s

this is where the SEC reaches out to the

entities it believes could have violated

Securities laws we'll come back to the

other stages later by the way now the

pre Wells period does not have a fixed

time frame this means that the SEC has

likely been probing ethereum's ecosystem

for much longer than a month this is

what some people believe given that the

ethereum foundation had hinted that an

investigation was occurring late last

month similarly other people believe

that the SEC has been probing ethereum's

ecosystem since ethereum transitioned

from proof of work to proof of stake in

September 2022 some of you might

remember that Gary said proof of stake

cryptos are securities on the same day

as the merch probably not a coincidence

however our research suggests that the

SEC didn't begin investigating ethereum

until after the cha upgrade in April of

last year so to refresh your memory the

chappella upgrade made it possible for

ethereum validators to claim eth staking

rewards and unstake their eth this is

more significant than you think you see

even though ethereum had transitioned

from proof of work to proof of stake in

September 2022 eth's status as an asset

did not change at that time that's

simply because its qualities as an asset

were still identical to the proof of

work eth which the SEC had said was not

a security in

2018 after the chappella upgrade however

eth's qualities as an asset did change

because now it could actually be

unstaked and earn a yield prior to

chappella all of that staking and yield

only existed on paper after chappella it

went into practice and that meant the

sec's previous comments about eth no

longer applied more more importantly it

meant that Gary's own comments about eth

no longer applied some of you will know

that Gary himself had said that eth was

not a security prior to his joining the

SEC now while some believe these clips

will protect eth in the event of a

Crackdown they're technically not about

the same eth now consider that the SEC

expanded its crypto unit one day before

the chappella upgrade consider that the

SEC announced its largest whistle blower

award ever less than a month later

consider that the ethereum foundation

sold a large amount of eth the day after

The Whistleblower award was announced

now this could all be a coincidence but

it raises an eyebrow and it raises both

eyebrows when you consider what some of

ethereum's co-founders had been doing

and saying around that time for example

Joe lubben said that eth was not a

security last February seemingly out of

the blue this reminded us of similar

comments made by ripples Executives

shortly before the SEC came knocking on

their door similarly Anthony diorio's

last tweet was made in June last year lo

and behold it was about Securities laws

to be fair these comments were likely a

reference to the sec's lawsuits against

coinbase and binance which alleged that

many cryptos similar to eth were

Securities in any case the key takeaways

here are that the SEC has likely been

investigating the entities behind

ethereum since at least last April this

is because April 2023 was when eth's

status as an asset changed that made it

possible for the SEC to entertain the

idea of an ethereum lawsuit without fear

of the case being thrown out so this

begs the question of why the SEC

believes that eth is a security or

rather what it would argue in a

potential lawsuit once again history

seems to have the answers specifically

the sec's lawsuits against coinbase and

binance last summer if you watched our

summary of the binance lawsuit you'll

know that almost all the cryptos the SEC

noted as being Securities had the same

things in common they were originally

launched via Ico and a portion of the

initial Supply was allocated to insiders

be they the team company or Foundation

the crypto project was promoted by the

team company or Foundation the team

company and or Foundation had

overlapping Personnel the coin or token

could be staked to earn a yield the coin

or token had a burning mechanism

designed to create deflationary

tokenomics that increases its price now

as we mentioned in that video all these

criteria could be applied to eth it was

originally launched via an Ico a portion

of eth's initial Supply was allocated to

the ethereum foundation and the team eth

was likely promoted by the team and the

foundation according to the sec's

definition of promotion now if you're

unfamiliar with the sec's definition of

promotion it means saying or doing

anything that could even be remotely

interpreted as promotion to put things

into perspective the secc literally

thinks that posting rocket emojis counts

as promotion and anyways some of

ethereum's Founders notably vitalic

buaran were once members of the ethereum

foundation eth can be staked to earn a

yield and a portion of all eth

transaction fees are burned creating

deflationary tokenomics designed to

increase eth's price now the caveat is

that most of these criteria were met

long before ethereum transitioned from

proof of work to proof of stake and long

before the chappella upgrade this means

that the SEC would somehow have to argue

that the new eth is different but still

inherited some of the security criteria

of the old eth now here is where things

get spooky shortly after it was revealed

that the SEC was investigating the

entities behind ethereum Charles

hoskinson who's also an ethereum

co-founder tweeted this quote the

investigation isn't related to

historical facts and circumstan es

around the 2014 Ico but rather to the

position that the 2022 transition from

proof of work to proof of stake is a new

cryptocurrency with a new set of facts

and circumstances what that means is

that everything about eth gate and proof

of work prior statements Etc would be

irrelevant since ethereum 2 reset the

clock and has a blank slate legal

interpretation in some what we just said

the SEC seems to be dealing with two

different eths what's spooky is that

Charles subsequently deleted this tweet

leading to speculation that the

investigation could somehow be

stretching back to ethereum's proof of

work days for those unfamiliar it's

typically not a good idea to speak

publicly about investigations that could

pertain to you this underscores the

aforementioned Silence of some of

ethereum's other co-founders and makes

us Wonder whether it's just another

coincidence that Joe and vitalik stopped

tweeting around the time that the sec's

investigation was made public it is of

course possible that they've tweeted

Again by the time you see this video

regardless this highlights the

possibility that the reason why Gary and

the SEC refused to clarify their stance

on eth was because they were planning on

going after ethereum making any prior

statements could have interfered with

the current investigation and affected

the outcome of any related lawsuit here

is where things get scary it's actually

not Gary who decides which crypto

projects the SEC goes after it's not

even the Commissioners Who oversee the

agency if it were then this

investigation wouldn't be happening

because three of the five Commissioners

appear to be Pro crypto if you look at

any of the lawsuits that the SEC has

made against crypto projects in the past

you'll notice they all have something in

common they were all initiated by the

sec's division of enforcement which is

not led by Gary but by another

apparently anti-crypto regulator gerer

greywall if ger Greywell sounds familiar

that's because we actually summarized

one of his hearings back in 2022 in

retrospect this is surprising because

even we didn't fully understand the

significance of his position at the time

as you can imagine we tried to find all

the info we could about geria for this

video that's just because he will

probably be the one who decides on

whether or not to move forward with a

lawsuit once the initial investigation

into etherum is over what we found was

terrifying and not for the reasons you'd

think in short geria doesn't seem to

know much about cryptocurrency in fact

geria seems to be overwhelmed by how

complex the SEC is so much so that he's

frequently contacting other people

within the agency for advice he revealed

this in an interview last June by the

way news flash but this suggests that

gerbier doesn't understand crypto or how

to regulate it effectively case in point

the SEC admitted that it had made an

error in one of its crypto lawsuits last

December despite this gerer revealed in

an interview last November that the SEC

plans to double down on its crypto

crackdowns in 2024 believe it or not but

he said that people are losing trust in

Regulators like the SEC and he seems to

think that the solution to restoring

this trust is to increase enforcement

efforts now consider that the SEC asked

for more funding to crack down on crypto

the day before it was revealed that it

was investigating entities in ethereum's

ecosystem probably just another

coincidence in all seriousness geria

doesn't buy the idea that crypto needs

to be regulated differently from

anything else when you combine this fact

with everything else we've discussed so

far you get what looks like a pretty

good chance that the SEC will try to sue

the entities behind ethereum and this

ties into the three stages of SEC

lawsuits so to recap the first stage is

pre- Wells which is essentially the

investigation phase that ethereum is in

now I'll repeat that this stage has no

set time limit and note that this

applies in both directions the pre Wells

investigation phase could last for

months or even years time does not seem

to be on ethereum side however that's

because gerby revealed in that interview

last June that the SEC is actively

trying to shorten the pre-s period put

differently they're trying to speed up

the time it takes to get to the lawsuit

stage no doubt part of gerb's

enforcement strategy but before the

lawsuit there's a second stage called

the wells notice this is when the SEC

sends an official letter to the entities

it's been investigating explaining why

it believes a lawsuit is Justified upon

receiving this letter the entities then

have 30 days to issue a response called

a Wells submission Wells submission is

basically a rebuttal of the arguments in

the wells notice and is intended to

convince the SEC not to move forward

with the lawsuit the catch is that the

SEC proceeds with a lawsuit in 80% of

the cases where it issues a Wells notice

statistically speaking a lawsuit is very

likely at that point now at the time of

shooting the ethereum entities that the

SEC is investigating have not been

handed a Wells notice although this is

something something that individuals and

institutions often try to keep under

wraps in this case chances are that the

information would leak that a Wells

notice had been issued if it does come

out that the SEC has issued a Wells

notice to entities behind ethereum well

then eth's price would probably crash as

investors would know that there's an 80%

chance that a lawsuit is coming

regardless of the response other cryptos

that the SEC noted as being Securities

would crash too it's easy to forget that

the SEC hasn't officially gone after

those other cryptos either from the

sec's perspective it probably doesn't

have to if it can successfully crack

down onne that's because it would become

clear to everyone that no crypto is safe

from the SEC except BTC just like Gary

has been saying so this brings me to the

big question and that's what all this

means for the crypto Market the answer

is is long enough to create another

video but we'll try to keep it short as

this video is already getting pretty

lengthy so right now the sec's scrutiny

of the entities behind ethereum means

nothing because there's no lawsuit in

theory the sec's scrutiny of the

entities behind ethereum could lower the

chance of a spot ethereum ETF being

approved in reality there were already

more technical factors at play that made

this unlikely never mind the fact that

the sec's enforcement division Vision

doesn't decide which ETFs get approved

on that note all that matters right now

is how the sec's enforcement division

will proceed in its investigation as we

learned it looks like there's a high

chance that geria will push for an

enforcement action given his explicitly

stated goal of regulating the crypto

industry by enforcement even more so the

question there is when and this is

something we couldn't find any

information about we couldn't even find

any

coincidences Jokes Aside there are two

possible answers here the first is that

the SEC could launch an enforcement

action before the final spot ethereum

ETF decision dates in late May again

though it seems unlikely that the SEC

would go to the effort of launching an

enforcement action against ethereum just

to stop a spot ethereum ETF approval

then again the fact that the regulator

is fundamentally tasked with protecting

the mega Banks could make it a

worthwhile Endeavor the second possible

window for an enforcement action against

ethereum is closer to the November

election this might sound silly Until

you realize that people like Gary and

geria are themselves fundamentally

politically motivated they want to keep

climbing the rungs of government power

as a fun fact Gary's endgame is

reportedly to become the Secretary of

the Treasury a position currently held

by everyone's least least favorite

bird-like human being Janet yelen given

this fact it's possible that gerb's

endgame is to get Gary's position as SEC

chair it would certainly explain his

enforcement Focus now for reference

Janet's term will end early next year

that is probably when Gary would throw

his hat in the ring to ascend to the

even Higher Throne at the treasury and

when ger would try to seize the throne

at the

SEC with politicians deciding these

appointments pre-election is their

chance to get noticed by them when it

comes to appeasing anti-crypto

polititions there's nothing that would

get geria noticed more than cracking

down on the second largest

cryptocurrency and there's no doubt that

Gary would ensure that his name is

included on the press release just like

it was in the sec's lawsuit against

coinbase but this all assumes that

anti-crypto politicians will continue to

reign supreme in con Congress which is

by no means guaranteed even so that

probably won't stop Gary and geria from

doubling down in case their side of the

aisle wins you probably don't need us to

tell you which side is anti crypto in

the US by the way so put together this

all paints a bleak picture for e and the

rest of the crypto Market in the coming

months something that coincidentally is

consistent with the Q2 correction we

discussed in a recent video what we did

not discuss though is the possibility of

an SEC lawsuit against ethereum which

would be a real tail risk besides the

fact that it could result in eth being

delisted from crypto exchanges the

impact it would have on eth's price

could cause an implosion in ethereum's

defi ecosystem which has levered up on

all sorts of liquid staked and liquid

restak Tokens The Silver Lining is that

the bombshell ruling that sales of x RP

on exchanges did not constitute

Securities offerings could minimize the

number of D listings eth would

experience in the United States still

the understanding that the SEC sees eth

as a security could also scare crypto

exchanges into delisting everything but

BTC which would be truly

unprecedented the only thing that would

stop that would be if the sec's cases

against coinbase and binance are thrown

out which doesn't seem very likely

anymore The Biggest Loser in all of this

however would be the United States as

the crypto industry would likely leave

the country entirely particularly if the

SEC somehow manages to win any lawsuit

it might bring against ethereum this is

something we won't be able to assess

until a lawsuit is revealed so let's

hope it doesn't get to

that and that's all for today's video

folks so if you found it informative

smash that like button to let us know if

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potential Crackdown on E then share this

video with them okay thank you all so

much for watching and I'll see you in

the next one this is Guy signing

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