The recent news of the Securities and Exchange Commission (SEC) launching a probe into Ethereum and the Ethereum Foundation has sparked discussions and speculations within the cryptocurrency community. According to Scott Johnsson, a finance lawyer and general partner at Van Buren Capital, the SEC’s probe could serve multiple purposes beyond just regulatory scrutiny.
Johnsson posits that one potential reason behind the probe is to address the growing concerns raised by crypto skeptics and some lawmakers regarding spot crypto ETF approvals. Democrat senators like Jack Reed, Laphonza Butler, and Elizabeth Warren have been vocal in their disapproval of spot crypto ETFs, urging SEC Chair Gary Gensler to take a tougher stance.
The SEC’s probe into Ethereum could be a strategic move to appease these skeptics and senators without outright denying spot Ether ETFs. Johnsson suggests that the SEC might use a non-correlation objection as a basis to deny ETH spot ETFs, as the correlation between spot markets and futures is improving over time.
Correlation analysis has been a key factor in the SEC’s decisions regarding crypto ETPs, but there are indications that the correlations are not as strong, especially compared to Bitcoin ETFs. ETF analyst Eric Balchunas noted the weakening correlation between futures and spot markets, which could impact the SEC’s approach to approving or denying crypto ETFs.
Moreover, the SEC’s probe into Ethereum could help the agency navigate its legal actions against major exchanges like Coinbase and Binance. In June 2023, the SEC accused these exchanges of offering unregistered securities involving 19 tokens, although Ethereum was not among them. Johnsson suggests that the probe could allow the SEC to avoid undermining its legal arguments while maintaining a strategic position on Ethereum’s security status.
SEC Chair Gary Gensler’s vague responses regarding Ethereum’s security status further add to the speculation. Gensler’s non-committal stance during an interview with Bloomberg TV indicates that the SEC may be treading carefully regarding Ethereum’s regulatory classification.
Johnsson concludes that the SEC could adopt a “soft approach” by leveraging the ongoing investigation into Ethereum’s security status as a pretext to deny approval for spot Ethereum ETFs. This approach allows the SEC to maintain regulatory control while addressing concerns raised by stakeholders and lawmakers.
Overall, the SEC’s probe into Ethereum represents a complex intersection of regulatory strategy, investor sentiment, and legal considerations within the evolving landscape of cryptocurrencies.
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