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Spot Ethereum ETFs at Risk: SEC Filing Points to Security Concerns

2 mins
Updated by Ryan James
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In Brief

  • SEC filing suggests ETH may be classified as a security, endangering spot ETF approvals.
  • American regulator seeks public input on Ethereum's classification, likely to strategically deny ETFs.
  • VanEck's spot Ethereum ETF decision by May 23 could significantly impact the industry.
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A recent SEC filing has sparked concerns about the future of spot Ethereum ETFs, potentially shaking the crypto industry’s foundation.

On May 13, Scott Johnsson from Davis Polk and Wardwell highlighted the SEC’s call for public input on classifying BlackRock’s proposed spot Ethereum ETF as a commodity-based trust.

SEC’s Review on Ethereum ETFs

Johnsson suggested that denying the ETFs could be a strategic move, as they might be misfiled as commodity-based trust shares.

“The obvious purpose is to potentially deny on the basis that these spot filings are improperly filed as commodity-based trust shares and do not qualify if they are holding a security,” Johnsson explained.

On the other hand, a recent BlackRock filing pointed to a possible SEC move to label ETH as a security. Such a classification could block the approval of spot Ethereum ETFs.

A Bloomberg ETF analyst, Eric Balchunas, remarked that although riddled with legal terms, the filing signals a low chance for SEC approval of a spot Ethereum ETF. Balchunas emphasized, focusing on the classification issue:

“The likelihood remains very low—slim to none,” he noted.

Anticipation and Concerns Over ETF Approvals

The SEC’s decision on the VanEck spot Ether ETF, due by May 23, is critical. It will likely influence other firms like ARK 21Shares and Hashdex. Grayscale’s recent withdrawal of its ETF application has added to the market’s uncertainty. VanEck’s CEO, Jan van Eck, has expressed concerns about regulatory challenges.

Amid these events, SEC Chair Gary Gensler’s previous comments that ETH is not a security are under review. The commission is scrutinizing the altcoin’s status more closely. Gensler’s upcoming speech at the Investment Company Institute summit in Washington, D.C., could provide further clarity.

Johnsson highlighted the SEC’s obligation under 15 U.S.C. 78s(b)(2)(B) to explain any potential rejections. The frequent issues in filings regarding Ethereum ETFs not being correctly classified as commodities indicate a shift in regulatory focus.

Reactions vary within the industry. Standard Chartered has shown pessimism regarding the instrument’s approval, calling for more dialogue between the SEC and ETF applicants. Conversely, JPMorgan is optimistic but remains cautious about potential legal issues similar to those Grayscale encountered.

Read more: Ethereum ETF Explained: What It Is and How It Works

An April report revealed the SEC’s investigation into the Ethereum Foundation. The focus is on whether ETH should be considered a security. This inquiry could significantly affect the SEC’s final decision on Ethereum ETFs.

As the VanEck application deadline approaches, the crypto community is on edge, eagerly awaiting the SEC’s verdict. This decision will not only affect the future of spot Ether ETFs but also set a precedent for the crypto market’s regulatory framework, highlighting the substantial stakes and potential for major changes.

Top crypto platforms | May 2024

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Shota Oba
After interning at a domestic blockchain media company while enrolled at a university in international relations, he worked as an intern trainee at two foreign crypto asset exchanges. Currently, as a journalist, he focuses on the Japanese crypto asset market, both technical and fundamental analysis. He has been trading crypto assets since 2021 and is interested in economic and social affairs.
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