1. The prospects for Ethereum ETF spot applications are worrying
Analysts say that despite the upcoming deadline for Ethereum ETF spot applications, a definitive answer on its regulatory status seems "unlikely" to come.A lawyer specializing in digital assets warned on Tuesday that the U.S. Securities and Exchange Commission (SEC) may soon assert that Ethereum is a security and is expected to reject several Ethereum ETF spot applications.
II. Decisions of the Regulatory Authority and Related Applications
The regulator is set to make a decision on VanEck’s application for such a product on May 23, and a final decision on ARK Invest/21Shares’ application the next day. BlackRock, Fidelity and Grayscale are among those that have also filed with the SEC. In March, the SEC outlined potential “grounds for rejection” for BlackRock’s application and Nasdaq’s proposal to list BlackRock’s products. One question the SEC raised in its notice was whether Nasdaq “properly submitted its proposal” under the exchange’s rules for so-called commodity-based trust shares.
3. Views of all parties and analysis of the situation
Scott Johnson, general partner at Van Buren Capital, believes the inclusion of the question is telling. “The obvious purpose is to potentially disprove that these on-site filings were improperly filed as commodity-based trust shares and that if they hold securities, they are ineligible,” he tweeted. The SEC could explicitly assert in its intended ETF disavowal that Ethereum is a regulated security, rather than indirectly excluding the digital asset from being a commodity. But Terrence Yang, managing director of Swan Bitcoin, told Decrypt that this is “highly unlikely.” “Gensler and his team are political animals,” he said. He believes the political context around cryptocurrencies has become too charged, and the move could spark a backlash from crypto-friendly politicians, including former President Donald Trump.
Following the SEC’s approval of a spot Bitcoin ETF in January, hopes of a spot Ethereum ETF receiving the same treatment have plummeted. As of this writing, traders on blockchain-based prediction platform Polymarket pessimistically predict a 16% chance of the ETF being approved this month. While SEC Chairman Gary Gensler has publicly confirmed that Bitcoin is a commodity, the Wall Street cop has been tight-lipped when it comes to Ethereum, refusing to answer questions about the regulatory status of cryptocurrencies until March.
Last month, Ethereum software company Consensys filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), saying it had internally considered Ethereum a security for more than a year. Among other requests, the company asked a federal judge in Texas to declare Ethereum a commodity.
Before approving a spot bitcoin ETF in January, the SEC had rejected similar applications for a decade, citing concerns about fraud and market manipulation in the spot bitcoin market. The SEC said the so-called monitoring protocol for monitoring the bitcoin futures market ETF, which had already been approved, was insufficient.
Ultimately, a federal appeals court found this logic flawed, ordering the SEC to revoke its previous rejection of Grayscale’s application to convert its flagship trust fund into an ETF.Given that the SEC approved an Ethereum futures ETF last October, Yang said regulators could face similar headaches if they point to market manipulation again.“They can do it, but they should be prepared to be sued, and I think they will be politically attacked because of the heavy lobbying by the well-funded cryptocurrency industry,” he said.
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