Industry experts have suggested that the reported investigation into the Ethereum Foundation may be part of a coordinated effort to undermine Ether (ETH) and potentially delay or deny the approval of spot Ether exchange-traded funds (ETFs).
On March 20, it was reported that the United States Securities and Exchange Commission (SEC) had issued subpoenas to companies that have collaborated with the Ethereum Foundation. Sources familiar with the matter indicated that the SEC was aiming to classify ETH as a security in 2022.
In response to this news, Coinbase’s chief legal officer, Paul Grewal, argued that the SEC has no valid reason to reject the ETH ETF applications. He pointed out that SEC Chair Gary Gensler had previously testified before Congress that Ether is not a security.
Travis Kling, the chief investment officer of Ikigai Asset Management, expressed his belief that this investigation feels like a coordinated attack on ETH. He questioned the implications of this development.
Fox Business reporter Eleanor Terrett speculated that the subpoenas could explain the SEC’s reluctance to engage with potential spot Ether ETF issuers.
This lack of engagement has led Bloomberg ETF analysts Eric Balchunas and James Seyffart to reduce the likelihood of an approved spot Ether ETF from 70% to 25% by May.
Some notable figures, including Patrick McHenry, chair of the House Financial Services Committee, have expressed disapproval of the reported probe, stating that it contradicts the SEC’s previous actions.
Brian Quintenz, a former commissioner of the Commodity Futures Trading Commission, argued that the SEC had already acknowledged the non-security status of Ether when it approved Ether futures ETFs in October of last year.
However, Cardano founder Charles Hoskinson believes that the SEC may have changed its stance on Ether’s security status after Ethereum transitioned to a proof-of-stake consensus mechanism in September 2022.
Quintenz countered this argument by stating that the SEC would have considered the Ethereum Merge when approving the Ether futures ETFs, as the former event occurred before the latter.
Quintenz explained that if Ether were deemed a security, it would render CFTC-listed Ether futures ETFs illegal, as any derivative of Ether would be classified as a securities futures contract and subjected to different regulations.
Quintenz added that it will be intriguing to see what justification the SEC provides if it were to delay or deny an ETH ETF, considering it has already indicated that ETH falls outside its jurisdiction.
As of now, the SEC has continued to postpone its decision on spot Ether ETF applications, pushing them back to May or later. Several major players, including BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Hashdex, and Franklin Templeton, have submitted applications for spot Ether ETFs.
Balchunas and Seyffart now predict that the spot Ether ETFs will be denied, but they anticipate approval sometime before 2025.