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Newly released documents reveal that the New York Attorney General (NYAG) urged the U.S. Securities and Exchange Commission (SEC) to classify Ethereum (ETH) as a security. This request emerged during the SEC’s 2023 enforcement action against the cryptocurrency exchange KuCoin. However, the SEC ultimately refrained from publicly taking that position.

NYAG’s Push for Ethereum’s Security Classification

The documents, obtained through a Freedom of Information Act (FOIA) request filed by Coinbase, include an email from Shamiso Maswoswe, head of the Investor Protection Bureau at the NYAG’s office, to SEC Chair Gary Gensler’s chief of staff. In the email, Maswoswe advocated for the SEC to submit an amicus brief supporting the argument that Ethereum qualifies as a security under U.S. law.

While Maswoswe acknowledged that Ethereum’s classification as a security would not impact New York’s ability to pursue its case against KuCoin—since the state regulates both securities and commodities—she argued that a court ruling affirming ETH’s security status would bolster investor protections.

SEC’s Ambiguous Stance on Ethereum

Despite the NYAG’s request, the SEC declined to file the amicus brief and has maintained an ambiguous stance on Ethereum’s status. Historically, the SEC had implied that Ether was likely a commodity. However, since Ethereum transitioned to a proof-of-stake (PoS) consensus mechanism, speculation about whether it could be classified as a security has intensified. To date, the SEC has not officially categorized ETH as a security.

The KuCoin Settlement

The enforcement action against KuCoin concluded in December 2023, with the exchange agreeing to a $22 million settlement and ceasing operations in New York. At the time, Attorney General Letitia James stated that the legal action was part of broader efforts to hold cryptocurrency platforms accountable for unlicensed activity within the state.

Coinbase’s FOIA Findings

Coinbase’s FOIA request also uncovered additional SEC discussions about the classification of digital assets, including internal commentary on Ripple’s XRP and the regulatory challenges surrounding centralized versus decentralized blockchain projects. These revelations are part of Coinbase’s broader legal and public policy initiatives aimed at increasing transparency in crypto regulation.

Key Takeaways for Crypto Investors

For investors navigating the cryptocurrency market, regulatory developments like these underscore the importance of staying informed. Here are some tips to consider:

  • Research before investing: Understand the regulatory status of cryptocurrencies you’re interested in to avoid potential risks.
  • Stay updated: Follow ongoing legal and regulatory updates that could impact the crypto market.
  • Diversify your portfolio: Spread your investments across multiple assets to mitigate risks associated with regulatory actions.

As regulatory scrutiny around digital assets continues to evolve, keeping an eye on developments like Ethereum’s classification will be crucial for both novice and experienced investors.

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