Ether’s ETF approvals show that staking may still be a security in the eyes of the SEC.

The Securities and Exchange Commission's (SEC) approval process for spot Ethereum (ETH) exchange-traded funds (ETFs) has been fraught with controversy and questions. For starters, the crypto industry can't even agree on whether the news is a per se approval — the SEC is still about to clear the products for trading.

But perhaps most noteworthy is the agreement on inclusion in the filing. At best, this is a sign that the product providers have reached an agreement with the security guard. More likely, though, it shows the regulator's desire to open a back door to further investigation.

Staking has been a particularly contentious issue for spot ETH ETFs, with the two camps squabbling over the definition in relation to the infamous Howey test. From the perspective of the SEC, staking meets all four conditions to be considered an investment contract. According to the regulator, the stock is an investment into a joint enterprise (i.e. the blockchain ecosystem) in anticipation of profits based on the efforts of others – i.e. blockchain verifiers and developers. Therefore, they argue that staking should be regulated as part of their job security.

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But the counterargument is that staking is nothing like traditional investment contracts, because it's actually more like a technical service – it involves locking crypto tokens to ensure the network's safe and smooth operation. Additionally, the rewards don't actually come from the work of validators or developers – rather, they're coded into the smart contract.

This debate has been going on for a long time, so the statement we have seen from the SEC is certainly questionable. The agency feels it has conceded defeat on ETFs, knowing it still has another weapon left in its arsenal. As such, it is certainly too early to declare complete victory for Ethereum supporters.

At the very least, we should see the approval of S-1 filings that allow ETFs to trade properly. And while BlackRock is said to have updated its S-1 filing, which could be a good sign, there's no guarantee of a quick decision. It could be approved as early as next month, but equally it could still take months. Because of the political turmoil the United States has found itself in this year, there are no hard and fast guarantees.

In fact, there is no doubt that last week's expedited approval of 19b-4 was a politically motivated move. The House's passage of the new crypto-focused FIT21 bill — with strong support from Democrats — reflects a shift in the U.S. government's stance on digital assets. However, given that we have no idea what this government will look like after this year's presidential election, there may be very little certainty around the future regulatory perspective of crypto.

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Regardless of the regulation, once ETFs start trading – which is the baseline scenario – we'll see more upside in ETH prices. To some extent, this could usher in the “altseason” everyone has been waiting for. But the expectation that this rising tide will lift all boats is probably misplaced. It is clear to me that the focus now remains firmly on the Ethereum ecosystem rather than on other chains. Spot ETFs that track the price of Solana (SOL), Ripple (XRP) and the like are bound to upset the expectations of everyone who recently announced their adoption. It may be a while until the SEC gets a feel for the rest of the crypto ecosystem.

Spot ETH ETF or not, most altcoins remain highly speculative investments driven by sentiment and retail interest. In fact, even for Ethereum, institutional interest is not as guaranteed as Bitcoin. The same level of interest as we see with Bitcoin ETFs simply isn't the case for spot ETH ETFs. And, given the uncertainty surrounding the selloff, institutional investors may take a more cautious approach.

So, amid all this regulatory and political uncertainty, investors would do well to stay level-headed. We may be in for a long period of regulatory scrutiny, political posturing and a frustrating lack of transparency. As we know, markets don't like this and react with volatility. As such, sales in ETH and other altcoins are likely to increase in the near future. The outlook will depend heavily on the outcome of the election and how attitudes toward the SEC develop.

At this stage, preparing for different outcomes is incredibly important for a successful investment or trading strategy, because when such binary outcomes are involved, the risk of ending up with the wrong trade is very high. What is clear is that the SEC is definitely not finished with its attempts to classify some parts of the crypto ecosystem as securities, and the clampdown may be a compromise too far for the watchdog.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.