An investigation into Ethereum and the Ethereum Foundation by the Securities and Exchange Commission (SEC) may serve as a means for the regulator to reject spot Ether (ETH) exchange-traded funds (ETFs) and appease critics without undermining its ongoing legal battles, a cryptocurrency lawyer suggests.
Scott Johnsson, a finance lawyer and general partner at Van Buren Capital, shared his views on the SEC’s reported probe into Ethereum and the Ethereum Foundation. One theory, according to Johnsson, is that the SEC may be using the investigation to satisfy skeptics in the crypto community who have been demanding a more stringent approach from the agency. Democratic senators Jack Reed and Laphonza Butler, as well as Senator Elizabeth Warren, have been particularly vocal in their opposition to these investment products.
Another theory gaining traction is that the SEC may be employing the investigation as a means to reject spot Ethereum ETFs, as the argument of non-correlation may not hold up. “The SEC needs a non-correlation objection to deny ETH spot ETFs this year,” said Johnsson. He explains that denying spot ETH ETFs based solely on correlation analysis may only be a temporary solution, as correlation levels are improving over time. Correlation, which refers to the difference between spot market prices and futures, has been a significant factor in the SEC’s decision-making process regarding crypto exchange-traded products.
However, ETF analyst Eric Balchunas recently suggested that the correlations between futures and spot markets are not as strong, particularly in comparison to Bitcoin ETFs. Johnsson believes that the investigation could help the SEC avoid undermining its legal actions against Coinbase and Binance while still denying spot Ethereum ETFs.
In June 2023, the SEC accused Binance and Coinbase of offering unregistered securities, naming 19 tokens, but Ethereum was not among them. When asked about the status of ETH as a security in an interview with Bloomberg TV, SEC Chair Gary Gensler evaded the question without providing a direct answer. Johnsson posits that the SEC may choose to pursue an ongoing investigation into the security status of ETH rather than taking definitive enforcement action.
Coinbase Chief Legal Officer Paul Grewal responded to the reported SEC Ethereum probe by arguing that the SEC has no valid reason to deny ETH ETF applications. He expressed hope that the SEC would not attempt to question the established regulatory status of ETH, which the SEC has previously endorsed.
US Congressman Patrick McHenry also commented on the SEC’s actions against Ethereum, stating that it contradicts the assessment of the Commodity Futures Trading Commission (CFTC) and the SEC’s previous actions.
In the realm of crypto regulation, SEC Chair Gary Gensler’s authority is being questioned, and the question is raised as to whether he has the final say.