Pundits worry that the SEC’s Ethereum probe could be used to hold ETFs
The reported investigation into the Ethereum Foundation could be part of a “coordinated attack” on Ether (ETH) and could be used as a reason to ban or delay Ether ETFs, according to industry researchers.
On March 20, Fortune reported that the United States Securities and Exchange Commission issued several subpoenas to companies working with the Ethereum Foundation. Sources familiar with the matter said the commission has launched a campaign to declassify ETH as secure by 2022.
“The SEC has no good reason to deny ETH ETP applications,” said Coinbase Chief Legal Officer Paul Grewal in response to the news, saying that SEC Chairman Gary Gensler once testified before Congress that Ether is not a security.
We hope they don't try to invent one, questioning ETH's long-term regulatory status, which the SEC has repeatedly approved. That's not how the law works.”
“This feels like a coordinated attack on ETH right now,” said Travis Kling, chief investment officer of Ikigai Asset Management, in a March 20 X post. “I wonder what will happen.”
Fox Business reporter Eleanor Terrett suggested that the call announcements may explain why the securities regulator has been reluctant to engage with upcoming Ether ETF issuers.
A lack of regulatory involvement appears to be one of the main reasons why Bloomberg ETF analysts Eric Balchunas and James Seifert recently cut their position in Ether from 70% to 25% in May.
Meanwhile, House Financial Services Committee Chairman Patrick McHenry and others dismissed the reported move as inconsistent with the regulator's previous actions.
Reports @GaryGensler is moving to unilaterally classify #ETH as a security.
This is contrary to the @CFTC review and prior actions of @SECgov .
Congress determines the SEC's mandate and budget, something Chairman Gensler can't do while he's gone. https://t.co/83DUkCjMVA
— Patrick McHenry (@PatrickMcHenry) March 20, 2024
Brian Quintenz, former commissioner of the Commodity Futures Trading Commission (CFTC), argued that the SEC had already “clearly recognized” the security status of Ether when it approved the Ether Futures ETF last October.
However, Cardano founder Charles Hoskinson believes that the SEC may have changed its mind about Ether's security status after Ethereum transitions to a proof-of-stake agreement mechanism in September 2022.
But Quintense has argued that the SEC's decision to approve the Ether Futures ETF will trigger an Ethereum merger.
If ether is a security, that means CFTC-listed ether futures ETFs would be illegal because any ether derivative is considered a securities futures contract and would be subject to different rules, Quintenz explained.
“It will be interesting to see what excuses the SEC uses to delay or ban ETH ETFs,” Quintenz added.
Related: Prometheum Says Ether Is ‘Digital Asset Security' With Safeguard Service Launch
For now, the SEC continues to delay its decision on Ether ETFs applications, pushing them back to May or later.
Applicants include BlackRock, VanEyck, ARK 21Shares, Fidelity and Invesco Galaxy, Grayscale and Hashdex and Franklin Templeton.
Bulchanas and Seifert predict where Ether ETFs will be banned now, but expect approval to come before 2025.
Magazine: SEC Delays Ether ETFs, Binance Settlement Approved and Another Court Loss for SBF: Hodler's Digest, December 17-23
