The New York State Attorney General’s office made a significant request to the U.S. Securities and Exchange Commission (SEC) during its 2023 prosecution of KuCoin: to publicly declare that Ethereum’s ether (ETH) is a security, not a commodity. This revelation came to light through a series of documents released by Coinbase Inc., which were obtained via a Freedom of Information Act request.
Shamiso Maswoswe, the chief of the Investor Protection Bureau for the New York Attorney General, expressed her hope that the SEC would contribute to their court dispute by filing a brief concerning its stance on ETH. In her request, she stated, “We would like to request that the SEC file an amicus in support of the argument that Ether is a security. Whether it is or not will not be dispositive in our case (we have authority over both securities and commodities) — but I think it would be beneficial to investor protection to get a court to hold that Ether is a security.” This highlights the ongoing complexities of regulating cryptocurrencies and investor protection within the evolving landscape of digital assets.
As part of the legal proceedings, Coinbase also made available an array of previously private communications related to the SEC. These documents aim to shed light on the regulatory environment and the agency’s stance on various digital assets. Notably, earlier communications suggested that the SEC initially considered ETH to be a commodity, although this perspective appeared to shift around the time when Ethereum transitioned to a proof-of-stake consensus mechanism.
Despite the New York AG’s request, the SEC maintained a cautious approach, ultimately leaning towards categorizing ETH as a commodity, aligning it with Bitcoin (BTC). This persistent ambiguity regarding the classification of cryptocurrencies has been a prevalent issue faced by the industry and is central to the ongoing jurisdictional disputes with U.S. regulators.
In December 2023, following its legal actions against KuCoin, New York secured a $22 million settlement with the platform due to its failure to register as an exchange within the state. The Attorney General, Letitia James, emphasized her commitment to holding companies accountable for regulatory noncompliance in a landscape where consumer protection is paramount.
This instance exemplifies broader concerns about the regulatory framework governing cryptocurrency in the United States, particularly the fragmented oversight that exists between agencies like the SEC and the Commodity Futures Trading Commission (CFTC). As discussions continue, the SEC’s communications reveal a concerted effort to define the legal status of various crypto assets and address the existing gaps in oversight.
The ongoing debate surrounding Ethereum, which is emblematic of many cryptocurrencies, underscores the urgent need for clearer regulatory guidelines as both innovation and investor concerns evolve within the digital asset space.
