On Thursday, the US Securities and Exchange Commission (SEC) made a groundbreaking decision by approving eight spot Ethereum Exchange-Traded Funds (ETFs). These ETFs, proposed by major financial institutions and crypto firms including Grayscale, Bitwise, BlackRock, and ARK, signify a major shift in the regulatory approach towards digital assets. The approval consolidated proposals from the Nasdaq, NYSE, and CBOE.
Implications for the SEC’s Crypto Cases
This approval, however, introduces complexities, especially given the ongoing legal debates about the classification of other cryptocurrencies. Prominent crypto lawyer James “MetaLawMan” Murphy commented, “I believe the SEC is in deep trouble with some of its crypto cases in light of its determination that ETH is a commodity.”
Murphy highlighted that the SEC has consistently argued in the Coinbase case that “crypto tokens that operate within an ‘ecosystem’ are securities.” He questioned how the SEC could justify classifying ETH, which operates within a large ecosystem, as a commodity while designating SOL and ADA as securities when traded on Coinbase.
This issue underscores a fundamental problem: Ethereum, like other blockchains such as Solana and Cardano, supports a robust ecosystem that includes not just investment and trading, but also decentralized applications and smart contracts. The SEC’s distinction might complicate its stance in current and future litigation involving cryptocurrencies operating under similar frameworks but classified differently.
Murphy also suggested potential legal actions by affected parties: “Coinbase is due to file a Reply Brief tomorrow on its Petition to Certify Interlocutory Appeal. It would not surprise me if they also filed a request for rehearing of their motion to dismiss in light of the fact that the SEC now concedes that ETH is a commodity.”
He referenced Judge Failla’s previous ruling in the Coinbase case, which accepted the SEC’s ecosystem argument: “When a customer purchases a token on Coinbase’s platform, she is not just purchasing a token, which in and of itself is valueless; rather, she is buying into the token’s digital ecosystem, the growth of which is necessarily tied to the value of the token.”
Industry Reactions and Concerns
Consensys, a leading Ethereum software developer, voiced concerns about the SEC’s decision-making process, calling it inconsistent and ad hoc. The company stated, “This seemingly last minute approval is yet another example of the SEC’s troublesome ad hoc approach to digital assets. No other industry, market, or asset is subject to such deliberate regulatory abuse. It is unfair to market participants, antithetical to the rule of law, and handcuffing innovation.”
On today’s SEC ruling:
While Consensys welcomes today’s decision to approve ETH Spot ETFs as a step in the right direction, this seemingly last minute approval is yet another example of the SEC’s troublesome ad hoc approach to digital assets. No other industry, market, or…
— Consensys (@Consensys) May 23, 2024
Sam Callahan, a senior analyst at Swan, noted a significant omission in the SEC’s approval document: “Interesting paragraph in the SEC’s Ethereum ETF approval document. The SEC basically looked at the ETF products and whether they could adequately protect investors and maintain fair markets, and that’s about it. No mention of securities laws or ETH classification. No mention of the Howey Test.”
The lack of a definitive stance on Ethereum’s classification under securities laws raises questions about future regulatory challenges and implications for other digital assets. “We may have to wait for a statement from Gensler, and even then, he could sidestep the topic altogether,” Callahan remarked.
At press time, ETH traded at $3,670.
