Expert Warns of Challenges Ahead for Ethereum Spot ETF Amid SEC Scrutiny

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Author and finance lawyer Scott Johnsson weighed in on the US Securities and Exchange Commission’s (SEC) potential verdict on spot Ether exchange-traded funds (ETFs). He highlighted that the US regulator might consider “Ethereum security status” when deciding on an approval in the upcoming weeks.

Spot Ether ETF Reach Potential Denial Zone

Scott Johnsson shared a few screenshots in a thread on X, which focuses on whether Nasdaq correctly filed its proposal under Nasdaq Rule 5711(d), which pertains to Commodity-Based Trust Shares.

The heart of the matter lies in the classification of Commodity-Based Trust Shares as securities. If these shares are indeed classified as securities, it raises questions about the SEC’s stance on ETH. This could have significant implications for the approval of spot Ethereum ETFs.

Johnsson’s analysis suggests that the SEC may be considering ETH’s classification as a security, a topic that was less prominent during the evaluation of similar products, such as spot Bitcoin ETF.

One key point highlighted by Johnsson is the difference in the SEC’s approach between Bitcoin and Ethereum.

While the security status of Bitcoin was not a major consideration during its ETF filings, the same cannot be said for Ethereum. The SEC’s focus on ETH’s security classification, as indicated in the “Request for Comments (RFCs)” for ETH ETF filings, suggests a shift in regulatory scrutiny between the two cryptocurrencies.

This scrutiny aligns with regulatory requirements outlined in 15 U.S.C. 78s(b)(2)(B), which mandates that the SEC provide notice of any grounds for rejection under consideration.

The consistent inclusion of the security classification question in ETH ETF filings indicates a distinct regulatory approach compared to Bitcoin.

Meanwhile, Bloomberg ETF analyst Eric Balchunas weighed in on Scott Johnsson’s analysis regarding the potential denial of spot Ether ETFs. Balchunas highlighted that the SEC’s questions in the Request for Comments (RFCs) regarding the proper filing of ETF listing proposals as commodities for Ether ETFs suggest consideration of Ethereum as a security.

This, in turn, could impact the approval odds, which Balchunas assesses as “slim to none.”

The SEC faces a decision deadline of May 23 for VanEck’s spot Ether ETF, the first among several applications awaiting a verdict. A denial of VanEck’s application could set a precedent for subsequent spot Ether ETF applications from other asset managers like ARK 21Shares, Hashdex, Invesco Galaxy, BlackRock, and Fidelity, all awaiting SEC approval.

Scott Johnsson Predicts SEC’s 30 Pages of Analysis on Spot Ether ETF Verdict

Scott Johnsson had earlier disclosed that the SEC is likely to provide a detailed analysis of at least 30 pages to address whether an Ethereum spot ETF complies with regulations under the Exchange Act. This analysis is expected to be the final agency action that can be reviewed before the May deadline.

Additionally, Johnsson predicted that the US regulator may exceed the framework established for approving Bitcoin futures and spot products under the Securities Act of 1933. He also anticipates that the SEC may impose restrictions similar to those imposed after the GBTC verdict by the DC Circuit. This spot Bitcoin ETF recorded a 72-day outflow streak in April 2024.

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Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.