Recent actions by the United States Securities and Exchange Commission (SEC) have raised alarms across the cryptocurrency industry. On March 20, Fortune reported the issuance of multiple subpoenas by the SEC to entities associated with the Ethereum Foundation. This move is part of what some see as an effort to classify Ethereum’s native cryptocurrency, Ether (ETH), as a security.
The implications of such a classification are significant, with potential impacts on the approval of spot Ether exchange-traded funds (ETFs). Industry leaders have voiced their concerns, pointing to a possible “coordinated attack” on Ethereum. They argue this could serve as a pretext for the SEC to postpone or reject applications for spot Ether ETFs.
Paul Grewal, the Chief Legal Officer of Coinbase, reacted to the developments by emphasizing the lack of a solid basis for the SEC to reject ETH ETP (Exchange Traded Product) applications. He highlighted past statements from SEC Chair Gary Gensler, who had previously testified before Congress that Ether is not a security.
Grewal expressed hope that the SEC would not deviate from its earlier positions that indirectly supported Ether’s status as a non-security. Similarly, Travis Kling, Chief Investment Officer of Ikigai Asset Management, described the situation as an apparent targeted campaign against Ethereum.
SEC hesitance on Ethereum ETFs dampens expectations
The industry’s reaction to the SEC’s probe into Ethereum has been a mixture of disappointment and speculation. Fox Business reporter Eleanor Terrett suggested that the subpoenas might explain the SEC’s hesitance to engage with proponents of spot Ether ETFs. This reluctance has led Bloomberg ETF analysts Eric Balchunas and James Seyffart to significantly lower their expectations for the approval of such ETFs by May from a 70% to a 25% chance.
Brian Quintenz, a former Commissioner of the Commodity Futures Trading Commission (CFTC), pointed out the contradiction in the SEC’s actions. He noted that the SEC had previously recognized Ether as a non-security, particularly when it approved Ether futures ETFs. This acknowledgment, according to Quintenz, should preclude the SEC from reversing its stance without valid reasons. The Ethereum community and investors are closely watching the SEC’s next steps, especially given the potential legal and regulatory ramifications of reclassifying Ether as a security.
Major firms await SEC decision on Ether ETFs
The ongoing SEC investigation has cast a shadow over the future of Ether ETFs. The uncertainty stems from the regulator’s delayed decisions on spot Ether ETF applications, now postponed to May or later.
Applicants for these ETFs include major financial and investment firms such as BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Hashdex, and Franklin Templeton. Despite the regulatory hurdles, some analysts remain hopeful that approval for spot Ether ETFs may come before 2025.
The debate over Ether’s classification as a security has been further complicated by Ethereum’s transition to a proof-of-stake consensus mechanism in September 2022. Charles Hoskinson, the founder of Cardano, has suggested that this change might have influenced the SEC’s perspective on Ether. However, Quintenz countered this argument by noting that the Ethereum Merge, which marked the transition, occurred before the approval of Ether futures ETFs, implying the SEC had already considered this change.
