SEC Considers Ethereum’s Security Status Amid ETF Application Reviews

The SEC may contemplate assigning Ethereum the status of a security, as inferred from a request for comments, noted attorney Scott Johnsson.

I’m aware this is widely considered a possibility, but this is your official notice that the SEC is considering the security question for ETH in this upcoming spot ETF order. Note that this question was never (afaict) asked regarding a spot/futures BTC ETF product. pic.twitter.com/TwhqmTnJfC

— Scott Johnsson (@SGJohnsson) May 14, 2024

The document emerged following a second rejection of BlackRock’s iShares Ethereum Trust.

The expert clarified that the agency is required to provide a “Notice of Grounds for Refusal of Registration.”

“Assigning Ethereum the status of a security is seen as a possibility, but this is official notice that the SEC is considering it when reviewing spot ETF applications. Note that this question was never asked (as far as I know) regarding a spot/futures BTC-ETF product,” explained the expert.

According to Johnsson, the apparent aim is to potentially reject on the grounds that the proposals for launching ETH-ETFs were submitted with violations, as the instruments’ shares are securities, not exchange commodities.

“The SEC is playing hide and seek,” he indicated.

Bloomberg praised Johnsson’s analysis—finding information buried 50 feet deep in a pile of legal terms—and reminded that they consider the chances of ETH-ETF approval in May as “slim to none.”

TLDR: the SEC asked commenters re the Eth spot ETFs whether these filers have properly filed their ETF listing proposals as commodities. This shows the SEC is perhaps considering to Eth is a security in their denial. Our odds of approval remain the same: slim to none. Nice job of… https://t.co/g9HGPzGyOp

— Eric Balchunas (@EricBalchunas) May 14, 2024

In April, experts from Standard Chartered joined the camp of skeptics doubting the approval of spot ETH-ETFs by this deadline. Analysts cited the lack of constructive dialogue between the regulator and issuers.

In May, the SEC postponed a decision on a similar product from Invesco and Galaxy. On April 23, the Commission extended the review of Franklin Templeton’s spot Ethereum-ETF with a deadline until June 11. Prior to this, the agency extended the review period for a similar application from BlackRock. 

May will mark the final deadline for proposals from VanEck and Grayscale.

Grayscale Investments withdrew its application to create a futures ETF based on Ethereum. According to its CEO Michael Sonnenshein, the company will focus its efforts on converting the ETHE into a spot exchange-traded fund.

Previously, ARK Invest and 21Shares excluded staking from their ETH-ETF application.