The U.S. Securities and Exchange Commission’s (SEC) reported inquiry into the Ethereum Foundation has sparked speculation among industry experts that it might hinder the approval of spot Ether exchange-traded funds (ETFs). This probe, as revealed by Fortune on March 20, involves subpoenas issued to various entities associated with the Ethereum Foundation, hinting at the SEC’s efforts to possibly classify Ether (ETH) as a security since 2022.
Doubts Over Ether’s Regulatory Status
Despite SEC Chair Gary Gensler’s previous testimony to Congress asserting that Ether is not a security, the investigation has led to concerns over the future of Ether ETFs. Paul Grewal, Coinbase’s chief legal officer, expressed hope that the SEC would not undermine Ether’s established regulatory status, which has been consistently recognized by the commission.
Travis Kling, the chief investment officer at Ikigai Asset Management, described the situation as a “coordinated attack on ETH,” expressing uncertainty about the future implications. Furthermore, Fox Business reporter Eleanor Terrett suggested that this probe could explain the SEC’s reluctance to progress with spot Ether ETF applications.
Impact on Spot Ether ETF Prospects
The apparent standoff has led Bloomberg ETF analysts Eric Balchunas and James Seyffart to downgrade the likelihood of an approved spot Ether ETF from 70% to just 25% by May. The lack of engagement from the SEC has not only raised eyebrows but also drawn criticism from figures like Patrick McHenry, chair of the House Financial Services Committee, who view the SEC’s actions as contradictory to its previous stance.
Brian Quintenz, a former commissioner of the Commodity Futures Trading Commission, emphasized that the SEC had already recognized Ether’s non-security status, especially with the approval of Ether futures ETFs. He argued that the SEC’s current stance does not align with its past decisions, especially considering the Ethereum Merge to a proof-of-stake consensus mechanism occurred before the approval of these ETFs.
Looking Ahead
Despite these challenges, applicants for spot Ether ETFs, including major firms like BlackRock, VanEck, ARK 21Shares, and Fidelity, remain in limbo, with decisions deferred to May or later. While Balchunas and Seyffart predict eventual denial of the current applications, they remain optimistic about potential approvals before 2025.
This ongoing situation underscores the complex regulatory landscape for cryptocurrencies in the U.S. and the SEC’s pivotal role in shaping the future of crypto investments and innovations.
