Recent developments suggest that the likelihood of the United States Securities and Exchange Commission (SEC) approving an Ethereum spot Exchange-Traded Fund (ETF) has diminished further. There are indications that the SEC is considering classifying Ethereum as a security, a move that could impact the fate of pending ETF applications.
Growing Scrutiny on Ethereum
James Seyffart, a Bloomberg Senior ETF analyst, pointed out that the odds of the SEC denying Ethereum ETFs have increased considerably going by a March 4, 2024, SEC release. The document asserts that Ethereum may be considered a security.
Looks like odds just went up for SEC to deny Ethereum ETFs by claiming #Ethereum is a security. Not a guarantee that they will do this but i think this almost guarantees that the SEC is at least considering it. (not groundbreaking but first i've seen in public SEC documents) https://t.co/JK7M9G9Ttu
— James Seyffart (@JSeyff) May 14, 2024
The SEC recently shifted the decision on the application of Invesco Galaxy Spot Ethereum ETF to July 5. According to a release, this is the next deadline to either approve or disapprove the proposed spot Ethereum ETF.
Although this does not guarantee an outright denial, Seyffart’s observation suggests that the SEC is actively evaluating Ethereum’s classification. The final decision will rest on the Gary Gensler-led commission.
On his part, finance lawyer Scott Johnsson noted that the SEC’s consideration of Ethereum’s security status is officially noted in upcoming spot ETF orders. Notably, the focus on Ethereum’s security classification is important, particularly as similar questions did not come up in the runup to spot Bitcoin ETF filings.
Implications for Spot ETF Filings and Ethereum
The SEC is arguably leaning on Section 19(b)(2)(B) of the Act, which mandates the commission to provide notice of grounds for potential disapproval. This provision of the regulation of the SEC highlights the intense scrutiny surrounding Ethereum ETF applications.
Specifically, the SEC’s attention to Ethereum’s security classification raises questions about the eligibility of spot ETF filings based on commodity-based trust shares. Analysts say if the SEC considers Ethereum a security rather than a commodity, it could jeopardize the approval of ETF applications that rely on Ethereum as an underlying asset.
Although Ethereum’s status as a security remains under scrutiny in the United States, Hong Kong’s Securities and Futures Commission (SFC) approved spot Ethereum ETF in April. The move led to calls for the SEC to review its decision-making strategy. Mark Cuban, a billionaire investor, recently stated that the commission’s decision delays make it difficult for firms to register and comply with SEC’s regulations.
Late in April, Geoffrey Kendrick, the Head of Forex and Digital Assets Research for Standard Chartered backtracked on earlier optimism held that the SEC will grant approval by the end of this month.