Industry experts speculate that the reported investigation into the Ethereum Foundation may be part of a deliberate effort to undermine Ether (ETH) and potentially hinder the approval of spot Ether exchange-traded funds (ETFs). According to Fortune, the United States Securities and Exchange Commission (SEC) has issued subpoenas to companies associated with the Ethereum Foundation, with sources suggesting that the SEC is aiming to classify ETH as a security in 2022.
In response to this news, Coinbase Chief Legal Officer Paul Grewal argued that the SEC has no valid reason to deny ETH ETF applications, citing SEC Chair Gary Gensler’s previous testimony that Ether is not a security. Travis Kling, Chief Investment Officer of Ikigai Asset Management, expressed concern that the investigation appears to be a coordinated attack on ETH. Fox Business reporter Eleanor Terrett even suggested that the subpoenas may explain the SEC’s apparent reluctance to engage with potential spot Ether ETF issuers.
The lack of engagement from the regulator is a key factor in Bloomberg ETF analysts Eric Balchunas and James Seyffart’s decision to reduce the odds of an approved spot Ether ETF from 70% to 25% by May. This move has drawn disapproval from Patrick McHenry, Chair of the House Financial Services Committee, and others who believe it contradicts the SEC’s previous actions. Brian Quintenz, a former commissioner of the Commodity Futures Trading Commission, argued that the SEC had already recognized the non-security status of Ether when it approved Ether futures ETFs in October.
However, Cardano founder Charles Hoskinson suggests that the SEC may have changed its stance on Ether’s security status after Ethereum transitioned to a proof-of-stake consensus mechanism in September 2022. Quintenz counters this argument, stating that the SEC would have taken the Ethereum Merge into account when approving the Ether futures ETFs, as it occurred before the transition.
Quintenz further explained that if Ether were classified as a security, CFTC-listed Ether futures ETFs would be illegal, as any derivative of Ether would be considered a securities futures contract and subject to different regulations. He added that it will be interesting to see what excuse the SEC uses if it chooses to delay or deny an ETH ETF, given that it has already stated that ETH falls outside its jurisdiction.
Currently, the SEC has continued to postpone its decision on spot Ether ETF applications, pushing them back to May or later. Notable applicants include BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Hashdex, and Franklin Templeton. Balchunas and Seyffart now predict that the spot Ether ETFs will be denied, but they anticipate approval by 2025.
(Source: Brian Quintenz)