As the cryptocurrency world anxiously awaits the decision regarding Ethereum Spot Exchange-Traded Funds (ETFs) from the United States Securities and Exchange Commission (SEC), much has been said about the variables that could influence the Commission’s ruling.
Author and finance lawyer Scott Johnsson enters the discussion and highlights an important point: the SEC might consider Ethereum’s security status when deciding on the exchange products in the upcoming days, particularly on May 31.
Ethereum Security Question Poises Approval Hurdles
In an X post, Scott Johnsson shared a few screenshots that highlight the question of whether the Nasdaq Stock Market LLC (“Nasdaq” or “Exchange”) has properly filed its proposal to list and trade Shares of the iShares Ethereum Trust under Nasdaq Rule 5711(d), Commodity-Based Trust Shares, given the nature of the underlying assets held by the trust.
With the Commodity-Based Trust Shares being defined as a security, the question suggests that the SEC might be classifying ETH as a security, which poses a potential setback to the spot ETH ETFs.
While Johnsson thinks this is a possibility being discussed publicly, he believes it is official proof that the SEC is considering the security question for ETH in the impending spot ETF verdict. This is because this question was never raised when considering the same products for the largest cryptocurrency asset, Bitcoin.
The Post read:
I’m aware this is widely considered a possibility, but this is your official notice that the SEC is considering the security question for ETH in this upcoming spot ETF order. Note that this question was never (AFAICT) asked regarding a spot/futures BTC ETF product.
According to the lawyer, 15 U.S.C. 78s(b)(2)(B) mandates that the SEC give notice of the grounds for rejection under consideration. Although the question above was never asked or observed for a Bitcoin spot ETF filing, it was raised for every ETH spot ETF filing in their Request For Comments (RFCs).
The evident goal why the SEC brought up this question according to Johnsson is to maybe reject Ethereum spot ETFs on the grounds that the filings do not qualify if they are holding securities and were filed incorrectly as commodity-based trust shares.
Johnsson states that the broader crypto space considers his insights a potential reason behind the SEC’s action, but there could be more to the development than the community knows.
Final Reviewable Agency Action
Before the May 31 deadline, Johnsson claims the SEC will most likely provide at least 30 pages of analysis addressing whether or not it believes an Ethereum spot ETF complies with Exchange Act regulations. Thus, it will be the last agency action that can be reviewed before the deadline.
Furthermore, they will have to go beyond the framework they established to approve Bitcoin futures and spot products under the Securities Act of 1933 and the restrictions imposed on them after the GBTC verdict by the DC Circuit.
Johnsson believes there are several options available to the regulatory watchdog, and each will have far-reaching consequences.
