The U.S. Securities and Exchange Commission (SEC) may have a major change in attitude and approve an Ethereum spot ETF, causing the price of Ethereum to surge over 20% today. Alex Thorn, Head of Research at Galaxy Digital, analyzed that if the rumors of the SEC’s change in attitude are true, the SEC will determine that Ethereum itself is not a security, but the pledged Ethereum is a security.
If pledging turns Ethereum into a security, what will happen to the ecosystem?
Whether or not securities are recognized is the key to approval
The crucial moment for the U.S. Securities and Exchange Commission (SEC) to approve the Ethereum spot ETF will take place this week on the 23rd. The SEC needs to make a final decision on the applications from VanEck, Ark/21Shares (on the 23rd and 24th respectively), and the final decision on Grayscale’s application will be made on the 30th.
Originally, the market generally expected the SEC to reject the relevant applications, but Bloomberg ETF analyst Eric Balchunas had a major turnaround in attitude this morning, increasing the probability of approval from 25% to 75%, causing Ethereum to surge over 20% and reach the $3,700 mark.
However, it should be noted that another analyst, James Seyffart, also added that the probability increase to 75% is for the 19b-4 rule (exchange rule change), and the approval of the S-1 (registration statement) application is still needed in the future to officially see Ethereum spot ETF trading, which may take a few weeks to a few months.
Regarding the possibility of the SEC approving the Ethereum spot ETF, Alex Thorn, Head of Research at Galaxy Digital, presented his analysis in a post. Although it is not necessarily as speculated by the Head of Research at Galaxy Digital, as long as collateral is provided, it will become a security. However, if the situation really turns out this way, the currently high TVL of $35 billion in Lido and the recently popular re-collateralization protocol EigenLayer may face severe regulatory challenges.
Furthermore, the consensus mechanism of the Ethereum network has already transitioned to PoS. If pledging behavior does indeed turn ETH into a security, it could bring about significant changes to the current network security mechanism… This needs to be continuously monitored.
So far, the SEC has not explicitly determined whether Ethereum is a security or a commodity. Scott Johnsson, General Partner at Van Buren Capital, previously pointed out that the SEC is still considering this issue during the inquiry into BlackRock’s Ethereum spot ETF application on March 8th.
In that document, the SEC asked Nasdaq Stock Market whether they “considered the nature of the underlying assets held by the trust” and asked whether the argument supporting the listing of a Bitcoin spot ETF applies to Ethereum, given its PoS mechanism and the concentration of control by a small number of individuals or entities.
Richard Kerr, Partner at K&L Gates, pointed out that the Ethereum spot ETF is a product based on the 1933 Securities Act and commodities. If Ether is considered a security, the issuer will not be allowed to trade it under that name.
In fact, the SEC’s failure to clearly state whether Ethereum is a security has caused significant dissatisfaction among U.S. congress members. 48 U.S. congress members have jointly written to Gary Gensler in March, requesting clarification on whether Ethereum is a security and whether the plan of digital asset securities broker Prometheum to provide custody services for ETH is in violation.
Regardless of whether it is approved or not, several industry observers have previously stated that the SEC is unlikely to allow ETFs to pledge the ETH they hold. Ark Invest and 21Shares previously stated in their ETF plans that they would pledge the ETH they hold, but they did not include such language in the updated S-1 document submitted on May 10th.
[Image]
Related Reports
Countdown to the Ethereum spot ETF review: Will the SEC reject it on technical grounds? If rejected, will the issuer file a lawsuit?
ETH Volatility Warning: Several fund companies judge that the “Ethereum spot ETF” will be rejected by the SEC next week. What’s the next step for the issuer?
Open to Chinese investors: CSOP Global: Aiming to include Hong Kong Bitcoin and Ethereum spot ETFs in the Shanghai-Hong Kong Stock Connect within 2 years.