The SEC has Ethereum in its crosshairs. But does the agency think Ether is a security?

For weeks, speculation has mounted that the Securities and Exchange Commission is preparing to cross the crypto Rubicon and declare Ethereum, the second-largest cryptocurrency, a security. As the deadline looms for a decision on spot Ether ETFs, the move seems like the last option for an agency seemingly determined to find reasons to reject crypto products, even though prior, high-ranking staffers had argued that Ether was a commodity and out of its wheelhouse. The implications would be catastrophic for the broader crypto industry, with even mainstays like Fidelity offering trading services for Ether.

Confirmation appeared to come last Thursday when Consensys—an early developer for Ethereum, and the company behind the popular MetaMask wallet—filed a lawsuit against the SEC, revealing it had received a Wells Notice and had been the subject of a yearlong investigation into Ethereum’s security status. And then, on Monday, Consensys refiled its complaint, unredacting certain sections that had hinted the SEC officially believed Ether to be a security. The smoking gun, it turned out, was a formal order opening an investigation, signed by enforcement director Gurbir Grewal in April 2023, into the possible offers and sales of “certain securities, including, but not limited to ETH.”

The long-awaited proof was explosive. SEC Chair Gary Gensler has refused to take a stance on Ether’s security status, including under questioning by House Financial Services Committee Chair Patrick McHenry (R-N.C.) just a few days after the secret formal order, as well as when I interviewed him last November. Despite that lack of clarity, the SEC allowed the launch of Ether futures ETFs last October, which implies a view that Ether is not an unregistered security. Furthermore, despite launching a number of lawsuits against crypto companies since April 2023, the agency has never named Ether to be a security in its complaints. Predictably, the revelation drew rage from the crypto industry and beyond, with McHenry tweeting that Gensler “knowingly misled Congress.”

The whole situation seemed strange, even by the bizarro standards of the SEC versus crypto war, where reality is often obscured behind layers of bluster and exaggeration. Why would the SEC privately take such an incendiary stance, and share it with one of its main targets, while publicly contradicting itself?

Part of the confusion stems from the significance of a formal order, which, according to the SEC’s enforcement manual, commission staff draft to be reviewed by the enforcement director and serves as the necessary first step to an investigation that empowers staff to subpoena witnesses and take evidence. As Lowenstein Sandler partner Christopher Gerold confirmed, formal orders are not “conclusory,” meaning they do not represent legal conclusions. That, instead, would come as part of a Wells Notice, which informs potential defendants of the end of an investigation.

In other words, just because the formal order seemed to indicate the SEC’s view that ETH is a security at the beginning of an investigation does not make it the agency’s official stance. That would also provide a more generous explanation as to why Gensler did not take a stance on ETH’s status back in April 2023—it was at the onset of the investigation, with the agency deciding whether it would diverge from the view of earlier commissions. And according to a person familiar with the issue, the Wells Notice received by Consensys this April included no language about ETH being a security.

Of course, that could change if and when the SEC files its lawsuit against Consensys, which will focus on MetaMask’s status as an unregistered broker-dealer, as well as its staking products. The complaint could very well name ETH to be one of the unregistered securities offered by MetaMask. And, as Duke Financial Economics Center lecturing fellow Lee Reiners told me, all indications point to the SEC naming ETH as an unregistered security as a rationale for rejecting Ether ETFs.

Still, contrary to popular opinion amid the crypto industry, the agency has not yet taken the stance. “It’s premature and inaccurate to claim that the SEC has decided anything at this point,” Reiners said. But don’t be surprised if we finally get an answer in the next few weeks.

Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz

This story was originally featured on Fortune.com