The recent actions taken by the United States Securities and Exchange Commission (SEC) have sparked concern within the cryptocurrency industry. According to a report by Fortune on March 20, the SEC issued subpoenas to entities connected to the Ethereum Foundation, signaling a potential move to classify Ether (ETH), Ethereum’s native cryptocurrency, as a security.
This classification holds significant implications, particularly for the approval of spot Ether exchange-traded funds (ETFs). Industry leaders have expressed their worries, suggesting that this could be a coordinated attack on Ethereum and a way for the SEC to delay or reject applications for spot Ether ETFs.
Coinbase’s Chief Legal Officer, Paul Grewal, responded to these developments by highlighting that the SEC lacks a solid basis to reject ETH Exchange Traded Product (ETP) applications. Grewal referred to previous statements made by SEC Chair Gary Gensler, who had testified before Congress that Ether is not a security. Grewal expressed hope that the SEC would maintain its previous positions indirectly supporting Ether’s non-security status. Similarly, Travis Kling, Chief Investment Officer of Ikigai Asset Management, viewed this situation as a targeted campaign against Ethereum.
The SEC’s hesitance in approving Ethereum ETFs has dampened expectations within the industry. Eleanor Terrett, a reporter for Fox Business, suggested that the subpoenas could explain the SEC’s reluctance to engage with proponents of spot Ether ETFs. This hesitation led Bloomberg ETF analysts Eric Balchunas and James Seyffart to lower their expectations for ETF approval from a 70% chance to a 25% chance by May.
Brian Quintenz, a former Commissioner of the Commodity Futures Trading Commission (CFTC), pointed out the inconsistency in the SEC’s actions. He noted that the SEC had previously acknowledged Ether as a non-security when approving Ether futures ETFs. According to Quintenz, this acknowledgment should prevent the SEC from reversing its stance without valid reasons. The Ethereum community and investors are closely monitoring the SEC’s next steps, as reclassifying Ether as a security could have significant legal and regulatory consequences.
The future of Ether ETFs remains uncertain due to the ongoing SEC investigation. The regulator’s delayed decisions on spot Ether ETF applications have pushed the expected approval date to May or later. Major financial and investment firms, including BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Hashdex, and Franklin Templeton, have applied for these ETFs. Despite the regulatory challenges, some analysts remain optimistic that spot Ether ETFs could receive approval before 2025.
The debate surrounding 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, 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 initiated the transition, occurred before the approval of Ether futures ETFs, implying that the SEC had already considered this change.