With the landslide victory of President-elect Donald Trump, it would appear that the days are numbered for Gary Gensler, chair of the United States Securities and Exchange Commission (SEC).
Market and political observers anticipate that Trump will anoint a new head of the commission, a shift that could enable spot ETH ETFs to offer staking rewards and subsequently raise Ether (ETH) price.
Trump has made a lot of big promises to the US crypto industry. One of which was to fire Gensler “on day one” in his new administration. But this is easier said than done.
Cyber and digital media attorney Andrew Rossow told Cointelegraph, “The president has the power of appointment and removal of certain individuals from their positions, which extends to an SEC commissioner.”
However, he said, “It’s a bit of a gray area as to whether the president can directly fire the SEC chairman.”
Trump must present a proper cause for dismissal, such as neglect, inefficiency or malfeasance. Firing Gensler outright — an unprecedented move — could also mean political backlash for the Trump administration.
Rossow said Trump is likely to be undeterred by potential political fallout, as there is widespread frustration within the digital asset sector with Gensler’s “regulation-by-enforcement” approach. Additionally, Trump’s combative political style shows he has little regard for systemic norms.
Carol Goforth, a professor at the University of Arkansas School of Law specializing in business associations and securities regulation, told Cointelegraph that there is a faster route for Gensler’s removal without having to kick him out of the SEC:
“The president can demote the chair any time and replace him with one of the other sitting commissioners. That could happen immediately.”
Rossow said that the president has the power to transfer the position of chair among commissioners through powers defined in Reorganization Plan No. 10. He said Trump “may simply choose to transfer the position of chair to another SEC Commissioner on the constitutional grounds of faithful execution of his executory power.”
Still, “in most cases, SEC chairs tend to resign when there is a change in the White House during their term,” Rossow added.
Goforth noted that Gensler’s resigning would make appointing a new SEC chair more complex, as it would require Senate approval, which involves a longer and possibly contentious procedure of hearings and legislative wrangling.
However, she said that even Senate approval could still be “relatively easy for President Trump to achieve” as the Republicans have won control over the legislative body.
Trump has made clear his desire to appoint a crypto-friendly SEC chair. Among the SEC constraining actions that have stalled the development of the US crypto industry is considering staking as a security offering.
There are high hopes that a new SEC chair would stop ongoing enforcement actions and open the door for ETF issuers to offer staking.
Ether staking could boost struggling spot ETFs
The price of Ether has been underperforming market expectations. There are many reasons for Ether’s poor price action compared to Bitcoin or its direct rival Solana (SOL); one factor is the poor results delivered from the spot Ether ETFs since their launch.
Market observers expected the spot Ether ETFs to replicate the success of the spot BTC ETFs. BlackRock’s spot Bitcoin ETF saw over $1.1 billion in inflows on Nov. 7, bringing total BTC ETF assets under management (AUM) over $25 billion.
Spot Bitcoin ETFs saw a total of $1.34 billion in inflows on Nov. 7. Source: CoinGlass
In contrast, BlackRock’s iShares Ethereum Trust ETF hit one of the highest inflows on Nov. 8 almost reaching $86 million in inflows, for total of over $8 billion AUM. Yet, this boost hasn’t offset outflows from Grayscale’s Ethereum Trust ETF, which continues to impede their overall momentum.
Spot Ether ETFs saw a total of $85.9 million in inflows on Nov. 8. Source: CoinGlass
Federico Brokate, head of the US business of crypto ETF issuer 21Shares, told Cointelegraph that “ETH ETF flows have been somewhat disappointing.” However, he remains optimistic, saying, “We’ve seen steady demand for Ethereum; however, we anticipate this demand to accelerate,” stating:
“Institutional interest is expected to grow as regulatory clarity around ETH as a commodity strengthens confidence.”
Brokate said that the exclusion of staking for ETF investors is a significant contributing factor to the poor performance of the spot ETH ETFs. “Staking can be viewed as a source of passive income for investors, so for the crypto native or crypto-adjacent crowd, who we’d expect to be among early adopters, they have perhaps stayed on the sidelines so far.”
Onchain data researcher and former 21Shares analyst Tom Wan shared on X that he believes spot Ether ETFs could better compete with spot BTC ETFs in attracting inflows by luring investors with the promise of passive yields with staking.
The structure to offer the staking rewards could vary, depending on the regulatory and operational setup. ETF issuers could collect the staking rewards, effectively allowing them to get rid of management fees and market their products as such.
Currently, ETH ETF issuers charge between 0.15% and 0.25% in fees, with Grayscale’s ETHE notably higher at 2.5%. According to Wan, even staking 25% of assets under management could generate enough yield to offset these fees entirely. The prospect of free or lower costs of the ETH ETFs could draw institutional investors in and, particularly, appeal to retail investors, said Wan.
Another possibility would be for the ETF issuer to offer indirect staking benefits to the investor. The investor wouldn’t directly stake their assets but would benefit from the staking rewards generated by the ETF’s pooled assets.
Wan noted that even a modest staking yield could be impactful. “If issuers offer a 0% management fee plus ~1% yield, it would present a competitive alternative to BTC ETFs.” While a 1% yield may seem minimal, he said that “yield could be a meaningful differentiator.” The current rate of Ether staking is ~3.5% annual percentage yield (APY) depending on the specific staking method chosen.
No matter which model is selected, ETF issuers would have enough flexibility to attract investors. Wan concluded that “enabling staking yield could be a game changer.”
“One key factor holding ETH ETFs back from reaching their potential is the absence of staking. For institutional investors, who are likely new to crypto, Bitcoin is already a novel asset — Ethereum is even newer. To attract inflows, ETH ETFs need a clear differentiator that’s easy for investors to understand.”
Investors still perceive Ethereum as a vague concept. Brokate said the significant adoption of spot BTC ETFs is related to the branding of Bitcoin among institutional investors. “Ethereum has lower brand awareness than Bitcoin. Bitcoin is the flag-bearer for the industry and has a simpler narrative.”
Allowing staking on ETH ETFs could be a powerful catalyst for both institutional and retail adoption. A shift in SEC leadership would mark a significant step for the crypto industry, particularly for Ether’s price prospects, as altcoin ETFs for crypto assets like XRP or SOL have yet to receive approval.
A new SEC chair can’t change everything for staking
The SEC’s current concern is that staking operates like an investment contract, where profits are generated not solely from the asset itself but through a structured process involving third-party efforts. This interpretation could require staking services to comply with securities regulations, which include registration, disclosures and investor protections.
While the crypto community is hopeful that a new SEC chair could take a more relaxed approach, Goforth cautions against assuming there will be a quick regulatory shift, even with a new, potentially crypto-friendly SEC chair at the helm.
She said the SEC chair often “sets the tone for the Commission, but they cannot force policy changes alone.” The commissioners could overrule the chair and allow enforcement actions to proceed.
Under Gensler’s leadership, the SEC has pursued enforcement actions against several US crypto companies offering staking services.
Some companies, like crypto exchange Kraken, opted to settle rather than face a protracted legal battle, agreeing to pay a $30 million fine on Feb. 9, 2023. Others, like US-based crypto exchange Coinbase, decided to take its case to court.
Goforth said that an SEC chair “could not unilaterally cancel ongoing cases.” They would need to gather a majority of the commissioners to agree and have the Division of Enforcement dismiss the cases. Nevertheless, the most probable route would be to settle on favorable terms for the defendant’s business, said Goforth, removing the case from the court’s docket.
Goforth also noted that the Department of Justice could pursue criminal actions under securities laws, regardless of the SEC’s stance. A court could intervene without the SEC’s endorsement if a contentious case arose with a plaintiff, and even a private individual who lost money through staking could file a class action against an exchange.
All that the SEC can do is set what actions are brought to court; its analysis is not binding on the courts, and a judge ultimately decides what is legal, Goforth said.
