According to Fortune, the Securities and Exchange Commission (SEC) is stepping up its efforts to classify Ether as a security, a move that could complicate the approval of spot ETH ETFs. Three anonymous sources linked to the Ethereum Foundation report that the body headed by Gary Gensler has asked them for documents to examine their relationship with the foundation. The SEC has been conducting this investigation since Ethereum went Proof of Stake (PoS) in September 2022.
A recent adjustment to the foundation's GitHub code reveals the likelihood of an SEC investigation, as seen in this message, "This change removes a portion of the footer following receipt of a voluntary enquiry from a government agency requesting confidentiality."
The reference in the footer of the site, stating that the foundation had never been approached by an agency, has indeed been removed.
"The Ethereum Foundation (Stiftung Ethereum) has never been contacted by any agency anywhere in the world in a manner that requires that such contact not be disclosed. Stiftung Ethereum will publicly disclose any type of enquiry from government agencies that falls outside the scope of normal business operations."
The SEC's offensive is raising concerns about the future of spot ETFs in the US, especially as Gary Gensler, renowned for his anti-crypto stance, heads the commission. The possible change in the status of Ether, currently being debated by the SEC, could have a negative impact on the approval of spot ETFs. However, Rostin Behnam, Chairman of the Commodity Futures Trading Commission (CFTC), considers Ether to be a commodity, which raises questions about regulatory consistency.
"It is important to note that today's action by the Commission concerns ETPs holding a commodity and not a security, Bitcoin. This should in no way indicate the Commission's willingness to approve listing standards for crypto asset securities. [...] As I have said in the past, and without prejudging any crypto asset, the vast majority of crypto assets are investment contracts and therefore subject to federal securities laws." - Gary Gensler, press release dated 10 January 2024
Rostin Behnam, Chairman of the Commodity Futures Trading Commission (CFTC), has repeatedly asserted that Ether is considered a commodity, thus falling under his agency's jurisdiction. This perspective is reinforced by the CFTC's approval of Ethereum Futures ETFs in October, highlighting that a regulatory repositioning of ETH could jeopardise the future of these investment vehicles in the US.
Eleanor Terrett of Fox Business suggests that the SEC may seek to resurrect details of Ethereum's Initial Coin Offering (ICO). New York Attorney General Laetitia James indicated in a lawsuit against crypto exchange KuCoin that Ether's ICO qualified it as a security.
In contrast, Terrett notes that the SEC had a dialogue in 2018 with Ethereum co-founder Vitalik Buterin to discuss the role of the Ethereum Foundation. Following that meeting, Bill Hinman, then head of the SEC's Department of Corporation Finance, concluded that neither Bitcoin (BTC) nor Ethereum (ETH) fell within the agency's regulatory purview.
Financial lawyer Scott Johnsson points out that the SEC's recent actions reveal its intention to block approvals for spot Ethereum ETFs, a strategy similar to that adopted against Coinbase and Binance. Bloomberg analysts James Seyffart and Eric Balchunas estimated that the chances of approval for spot ETFs were already low, at just 30%. The potential classification of Ether as a security could reduce these chances to nil.
Despite the SEC's anticipated postponement of applications for spot Ethereum ETFs, the price of Ether remains stable, even rising slightly.
