Industry experts speculate that the reported investigation into the Ethereum Foundation may be part of a coordinated effort to target Ether (ETH) and potentially serve as a pretext for delaying or denying spot Ether exchange-traded funds (ETFs). According to sources, the United States Securities and Exchange Commission (SEC) issued subpoenas to companies associated with the Ethereum Foundation on March 20, as part of its campaign to classify ETH as a security in 2022. This move has raised concerns among industry insiders.
Paul Grewal, the chief legal officer of Coinbase, argued that the SEC has no valid reason to reject applications for ETH exchange-traded products (ETPs), citing SEC Chair Gary Gensler’s previous testimony that Ether is not a security. Travis Kling, the chief investment officer of Ikigai Asset Management, characterized the investigation as a coordinated attack on ETH. The implications of these subpoenas may also explain the SEC’s reluctance to engage with prospective spot Ether ETF issuers, as suggested by Fox Business reporter Eleanor Terrett.
Bloomberg ETF analysts Eric Balchunas and James Seyffart recently revised their predictions of the chances of an approved spot Ether ETF by May, lowering it from 70% to 25%. This change was due, in part, to the SEC’s lack of engagement. However, the reported move by the SEC has faced disapproval from figures such as Patrick McHenry, chair of the House Financial Services Committee, who argue that it contradicts the regulator’s previous actions. Brian Quintenz, a former commissioner of the Commodity Futures Trading Commission, pointed out that the SEC had already acknowledged the non-security status of Ether when it approved Ether futures ETFs in October.
Some believe that the SEC’s stance on Ether’s security status may have changed after Ethereum transitioned to a proof-of-stake consensus mechanism in September 2022. However, Quintenz argued that the SEC would have considered the Ethereum Merge when approving the Ether futures ETFs, as it occurred before the transition. Quintenz further explained that if Ether was classified as a security, it would make CFTC-listed Ether futures ETFs illegal, as any derivative of Ether would be considered a securities futures contract subject to different regulations.
Quintenz added that it would be interesting to see what excuse the SEC provides if it were to delay or deny an ETH ETF, considering it has already stated that ETH falls outside its jurisdiction. Currently, the SEC has postponed its decision on spot Ether ETF applications and pushed them to May or later. Notable applicants for spot Ether ETFs include BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Hashdex, and Franklin Templeton. Balchunas and Seyffart now anticipate a denial of spot Ether ETFs, but they expect an approval to come sometime before 2025.