The SEC's approval of spot Ether (ETH) ETFs suggests an implicit recognition that ETH is not a security. However, the securities regulator may still target actors in the staking domain.
The approval of spot Ether (ETH) exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) has sparked significant discussion among industry analysts and lawyers. They suggest this approval is an implicit recognition that Ether is not classified as a security, which could potentially extend to other cryptocurrency tokens as well.
James Seyffart, a Bloomberg ETF analyst, noted on the Bankless podcast with Ryan Sean Adams, "These are commodities-based trust shares, so the SEC, by approving these, is explicitly saying they’re not going to go after Ether as a security.” This perspective is shared by digital asset lawyer Justin Browder, who believes that if Ether ETFs receive S-1 approval—the final step needed for them to begin trading—then the debate about ETH being a security is settled. “The debate is over: ETH is not a security.”
Adam Cochran, a partner at venture capital firm Cinneamhain Ventures, extended this line of thinking to other projects' tokens. He argued, “ETH is a commodity, even with its current attributes. That means we can extrapolate to A LOT of other projects what elements matter in security. Today a lot of things probably clearly become commodities, even if they don’t know it yet.”
However, despite this apparent shift in the SEC's stance on Ether, Seyffart and others caution that the SEC might continue to pursue actions against actors involved with staking Ether. Seyffart commented, “[I think they will] try to thread this needle and say ETH itself; they're not going to call a security but staked ETH might be a security [...] and I don't believe they're going to give that up any time soon." This view is supported by digital asset lawyer Joe Carlasare, who stated, “The SEC could pursue individual actors and staking as a service even with the ETF launched. I think other actions are less likely.”
The skepticism is rooted in recent actions by the SEC, including a Wells notice issued in April to Ethereum infrastructure firm ConsenSys, primarily focused on Metamask’s trading and staking services. Finance lawyer Scott Johnsson noted that in its approval order, the SEC did not explicitly confirm Ether’s non-security status, effectively sidestepping the issue.
The broader crypto community is also awaiting official statements from the SEC and some of its Commissioners to clarify their stance. Industry experts expect these statements to provide further insight into the SEC's regulatory approach toward cryptocurrencies and staking.
On May 23, the SEC officially approved 19b-4 applications from major financial entities, including VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy, and Bitwise to issue spot Ether ETFs. Notably, many of these ETF issuers removed stakes from their final amendments, likely in response to regulatory concerns. However, Hashdex was the only ETF issuer that did not receive regulatory approval on the same day.
Despite the approval, the eight approved ETF issuers must wait until the SEC signs off on their S-1 registration statements before launching. This next step will be closely watched by the industry, as it may signal the SEC's final position on the classification of ETH and other cryptocurrencies.
The approval of these ETFs marks a significant milestone in the cryptocurrency industry, suggesting a move towards broader acceptance and integration of digital assets in traditional financial markets. However, the potential for regulatory actions against staking services underscores the ongoing complexities and challenges in the regulatory landscape for cryptocurrencies.
(BRAYDEN LINDREA, COINTELEGRAPH, 2024)