Recent developments have cast a shadow over the cryptocurrency industry, with the United States Securities and Exchange Commission (SEC) issuing multiple subpoenas to parties connected to the Ethereum Foundation. This action, reported by Fortune on March 20, 2024, has ignited fears that Ether, Ethereum’s native cryptocurrency, might be reclassified as a security—a move that could significantly affect the approval process for spot Ether exchange-traded funds (ETFs).
Industry leaders are sounding the alarm, suggesting that these subpoenas represent a “coordinated attack” against Ethereum, potentially devised to stall or outright reject applications for Ether ETFs. Coinbase’s Chief Legal Officer, Paul Grewal, alongside Travis Kling from Ikigai Asset Management, have publicly criticized the SEC’s approach, arguing that there is no solid ground for the commission to reject ETH ETP (Exchange Traded Product) applications, especially considering SEC Chair Gary Gensler’s past congressional testimony affirming that Ether is not a security.
This move by the SEC has dampened expectations for the imminent approval of Ether ETFs, with analysts from Bloomberg adjusting their outlooks drastically. The industry’s anticipation for a May approval has plummeted from a hopeful 70% to a mere 25%, according to ETF analysts Eric Balchunas and James Seyffart.
Former CFTC Commissioner Brian Quintenz has highlighted the inconsistency in the SEC’s stance, pointing out the contradiction in considering Ether a non-security for the purposes of futures ETFs but not for spot ETFs. This inconsistency raises questions about the SEC’s rationale and its implications for the future regulatory landscape of cryptocurrencies.
The investigation has left major firms and investors in limbo as they await the SEC’s decision on spot Ether ETF applications, now delayed until at least May. Among the hopeful applicants are industry giants such as BlackRock, VanEck, ARK 21Shares, Fidelity, and several others, all of whom are navigating a climate of regulatory uncertainty.
The reclassification of Ether as a security, particularly in the wake of Ethereum’s transition to a proof-of-stake model, remains a contentious issue. While some, like Cardano founder Charles Hoskinson, speculate that the transition may affect the SEC’s view, others argue that the commission’s prior approval of Ether futures ETFs—post-Merge—suggests a degree of acceptance of Ethereum’s current consensus mechanism.