A legal expert in the finance sector has speculated that recent SEC scrutiny of Ethereum and its foundation may serve as a pretext for the regulator to deny Ethereum Exchange-Traded Fund (ETF) applications. This move could placate senators pushing for a more stringent regulatory approach on cryptocurrency products without impacting active legal proceedings. Scott Johnsson, a partner at Van Buren Capital, offered insights into the SEC’s possible motivations on March 22.
Ethereum Under the Regulatory Microscope
Johnsson proposed that the SEC could be addressing demands from critics, including Democratic senators Jack Reed and Laphonza Butler, who urged SEC Chairman Gary Gensler to halt the approval of additional spot crypto ETFs. Senator Elizabeth Warren has also been a vocal opponent of these crypto investment vehicles. A separate theory gaining traction is that the SEC might leverage the investigation to provide a basis for rejecting Ethereum spot ETFs, as relying solely on a lack of correlation may not hold as a long-term strategy.
Understanding the SEC’s Strategy
The debate centers around the correlation or lack thereof between spot market prices and futures prices. This has been a key factor in the SEC’s decision-making process for crypto ETP funds. Nonetheless, ETF analyst Eric Balchunas pointed out that these correlations are not particularly strong, casting doubt on the optimism for Bitcoin ETF approvals. Johnsson further explained that the SEC’s investigation into Ethereum could support their rejection of its spot ETF applications without jeopardizing their case against major exchanges like Coinbase and Binance.
Previously, in June 2023, Binance and Coinbase were accused by the SEC of offering unregistered securities, although Ethereum was not listed among those assets. When SEC Chairman Gensler was questioned about Ethereum’s classification as a security, he maintained his typical elusive stance. The SEC, it appears, might be adopting a less confrontational strategy by citing an ongoing investigation into Ethereum rather than imposing direct sanctions.