Key Points
- The SEC's probe into Ethereum could be a tactic to deny spot Ether ETFs and appease critics, suggests a crypto lawyer.
- The investigation could also help the SEC in its legal action against Binance and Coinbase without undermining its arguments.
A reported investigation into Ethereum and the Ethereum Foundation may be a strategic move by the Securities and Exchange Commission (SEC) to deny spot Ether (ETH) ETFs and appease critics, posits Scott Johnsson, a finance lawyer and general partner of Van Buren Capital.
Johnsson shared his insights on March 22, suggesting that the SEC may be using the probe to satisfy demands for a stricter approach towards cryptocurrencies from certain quarters.
Political Pressure on SEC
Earlier this month, Democrat senators Jack Reed and Laphonza Butler called upon SEC chair Gary Gensler to halt further spot crypto ETF approvals.
Senator Elizabeth Warren has also been vocal in her disapproval of these investment products.
Another theory suggests that the SEC might be using the investigation as a reason to reject spot Ethereum ETFs, as an argument of non-correlation may not be sustainable.
"The SEC needs a non-correlation objection to deny ETH spot ETFs this year," said Johnsson.
He explained that denying spot ETH ETFs based on correlation analysis could be a short-term solution, as correlation levels are improving with time.
Correlation refers to the variance between prices on spot markets and futures and has been a crucial factor for the SEC in approving or denying crypto ETPs.
However, ETF analyst Eric Balchunas recently mentioned that the "correlations between futures and spot aren't as strong."
Johnsson also believes that the probe could assist the SEC in denying spot Ethereum ETFs without "undermining the arguments" in its ongoing lawsuits against Binance and Coinbase.
In June 2023, the SEC accused Binance and Coinbase of offering unregistered securities, naming 19 tokens, but ETH was not among them.
When interviewed by Bloomberg TV earlier this month, SEC chair Gary Gensler was asked about the status of ETH as a security, but he remained vague in his response.
Johnsson suggested that the SEC might adopt a "soft approach", claiming an ongoing investigation into ETH's security status instead of taking definitive enforcement action.
He stated, "We find motivation in the present for the SEC to further an investigation into ETH security status as an additional pretense to deny approval."
ETF Store President Nate Geraci argued that the SEC should have claimed that ETH was a security before it approved Ethereum futures trading in October 2023.
Responding to the reported SEC Ethereum probe, Coinbase's chief legal officer Paul Grewal argued that "The SEC has no good reason to deny the ETH ETP applications."
He added, "We hope they won't try to invent one by questioning the long-established regulatory status of ETH, which the SEC has repeatedly endorsed."
On March 21, US Congressman Patrick McHenry commented on the SEC's actions against Ethereum, stating "This is contrary to the CFTC's assessment and the SEC's prior actions," and added: "Congress decides the SEC's jurisdiction and budget, Chair Gensler doesn't get to make it up as he goes along."
