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Ethereum Foundation Investigated by Unknown Government Body – Could ETH Face a Ban?

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Ethereum Foundation Faces Investigation

The Ethereum Foundation, a non-profit organization headquartered in Switzerland responsible for the creation and ongoing development of the Ethereum blockchain, is under investigation by an undisclosed “state authority,” according to a statement in the group’s GitHub repository.

A GitHub commit made on February 26th states, “We have received a voluntary inquiry from a state authority, which has requested confidentiality.”

However, it wasn’t until Wednesday, March 20th, that traders and crypto media outlets started to take notice of the news.

As the news started to spread, the price of Ether faced downward pressure. ETH was recently trading around $3,200, after reaching as high as $3,400 before news of the Ethereum Foundation investigation surfaced.

Investigation of the Ethereum Foundation – Who is Conducting It?

According to one attorney cited by various crypto news outlets, the Swiss regulator might be responsible for initiating the inquiry. Additionally, it’s suggested that this regulator could be collaborating with the US Securities and Exchange Commission (SEC).

Currently, the SEC is reviewing several applications from major Wall Street firms seeking to launch spot Ether ETFs. Many of the crucial decision deadlines for the SEC are approaching in May.

Despite approving Ether futures ETFs last year, analysts and the market have grown pessimistic about the likelihood of approval in recent weeks.

Bloomberg ETF analyst James Seyffart has recently predicted that Ether ETF applications will ultimately be denied in May.

 

This is because there hasn’t been much interaction between the SEC and Ethereum issuers regarding Ethereum-specific matters, he explained.

It’s understandable why there would be a lack of engagement if the SEC is collaborating with Swiss regulators to investigate the Ethereum Foundation, the creator of Ethereum.

Although the SEC hasn’t officially stated its position on whether it considers Ether a security or not, SEC Chair Gary Gensler has consistently argued, even during his tenure at MIT, that Ether is a security issued by the Ethereum Foundation.

The Ethereum Foundation conducted a presale of ETH in 2015 to finance blockchain development.

Is There a Possibility of ETH Being Banned?

When the SEC approved Ether futures ETFs last year, it was widely understood as confirmation that the agency considers ETH as a commodity rather than a security.

However, the SEC’s investigation into the Ethereum Foundation, conducted in collaboration with a Swiss regulator, raises the concern that the agency might classify it as a security.

If the SEC were to do so, US exchanges would likely be required to remove ETH from their listings. Failure to do so could result in accusations of operating as unlicensed securities exchanges.

While it’s premature to assume the SEC will categorize Ether as a security simply because of action taken by an unnamed regulator against the Ethereum Foundation, the possibility raises significant risks.

This uncertainty has contributed to the recent drop in the price of ETH.

Attention now shifts to the upcoming Fed meeting, which could further impact prices if the Fed adjusts its expectations regarding the number of rate cuts anticipated this year.

Additionally, ongoing profit-taking following Bitcoin’s recent all-time highs continues to exert downward pressure on the market.

Notably, outflows from the Grayscale Bitcoin Trust (GBTC) present a significant challenge. On Tuesday, net flows into spot Bitcoin ETFs reached a record high of negative $326 million.

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