SEC in ‘deep trouble’ with post-Ethereum Crypto ETF approval

On Thursday, the US Securities and Exchange Commission (SEC) made a historic decision approving eight spot Ethereum Exchange-Traded Funds (ETFs) from leading financial institutions and cryptocurrency companies, including Grayscale, Bitwise, BlackRock, and ARK. This historic approval, which consolidated proposals from Nasdaq, NYSE and CBOE, marked a significant shift in the regulatory landscape of digital assets.

Why the SEC is in ‘deep trouble’ with its cryptocurrency cases

However, this decision presents its own complexities, particularly in light of ongoing legal challenges involving the classification of other cryptocurrencies. Famous cryptocurrency lawyer James “MetaLawMan” Murphy commented“I believe the SEC is in big trouble with some of its cryptocurrency-related cases, in light of its belief that ETH is a commodity.”

He pointed out that the SEC has repeatedly argued in the Coinbase case “that crypto tokens operating within an ‘ecosystem are securities.’ I believe the SEC will have a hard time explaining how ETH, which operates within a giant ecosystem, is a commodity, while SOL and ADA are securities when traded on Coinbase.”

This statement captures the crux of the matter: Ethereum operates within a robust ecosystem that includes not only investments and exchanges, but also decentralized applications and smart contracts, similar to other blockchains such as Solana and Cardano. The distinction made by the SEC could complicate its position in ongoing and future litigation, particularly in cases involving other cryptocurrencies that operate under similar paradigms but are classified differently.

Murphy also suggested potential legal maneuvering by interested parties: “Coinbase will file a responsive brief tomorrow on their petition to certify the interlocutory appeal. It would not surprise me if they also file a motion for reconsideration of their motion to dismiss in light of the fact that the SEC now admits that ETH is a commodity.”

He also references Judge Failla’s previous ruling in the Coinbase case in which he accepted the SEC’s ecosystem argument and used it as the basis for his ruling. “When a customer purchases a token on the Coinbase platform, they are not simply purchasing a token, which in itself has no value; rather, he is purchasing part of the token’s digital ecosystem, the growth of which is necessarily tied to the value of the token.”

Consensys, a leading Ethereum software developer, has also expressed concern about the SEC’s decision-making process, suggesting it reflects an inconsistent and ad hoc approach to regulating digital assets. In a statement, the company said: “This seemingly last-minute approval is yet another example of the SEC’s problematic 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 hinders innovation.

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Sam Callahan, senior analyst at Swan, noticed a key omission in the SEC approval document: “Interesting paragraph in the SEC’s Ethereum ETF approval document. The SEC basically looked at 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 Try Howey.”

Therefore, the absence of a clear position on the classification of Ethereum under securities laws still raises questions about future regulatory challenges and implications for other digital assets. “We may have to wait for a statement from Genslerand even then, he could have avoided the topic altogether,” Callahan noted.

At the time of writing, ETH was trading at $3,686.

Ether price, weekly chart | Source: ETHUSD on TradingView.com

Featured image created with DALL·E, chart from TradingView.com

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