👀 Will Ethereum Be Declared a Security By the SEC Next Week?

The Securities and Exchange Commission (SEC) may soon assert that Ethereum is a security in its expected rejections of several spot Ethereum ETF applications, a lawyer who specializes in digital assets warned Tuesday.

The regulator is due to decide on VanEck’s application for such a product on May 23, followed by a final decision deadline for ARK Invest/21Shares’ application the next day. BlackRock, Fidelity, and Grayscale also have applications on the SEC’s desk.

In March, the SEC put forth potential “grounds for [the] disapproval” of BlackRock’s application and Nasdaq’s proposal to list BlackRock’s product. One question the SEC posed in its notice is whether Nasdaq “properly filed its proposal” under the exchange’s rules for so-called Commodity-Based Trust Shares.

Requiring that trusts hold a “specified commodity,” Scott Johnson, a general partner at Van Buren Capital, described the question’s inclusion as telling.

“The obvious purpose is to potentially deny on the basis that these spot filings are improperly filed as commodity-based trust shares and do not qualify if they are holding a security,” he wrote on Twitter.

Rather than indirectly excluding the digital asset as a commodity, the SEC could explicitly assert that Ethereum is a regulated security in its expected ETF denials. But that’s “highly unlikely,” Terrence Yang, a managing director at Swan Bitcoin.

“Gensler and his team, they’re political animals,” he said, arguing that the political backdrop surrounding crypto has grown too tense for a move that would likely spark backlash from crypto-friendly politicians, including Former President Donald Trump.

Following the SEC’s approval of spot Bitcoin ETFs in January, hopes that spot Ethereum ETFs will get the same treatment have plummeted. On the blockchain-based prediction platform Polymarket, traders penciled in a pessimistic 16% chance that ETFs are approved this month, as of this writing.

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