48 members of the U.S. Congress signed a joint letter today, led by Patrick McHenry, chairman of the House Financial Services Committee, urging Gary Gensler, chairman of the Securities and Exchange Commission (SEC), to clarify whether Ethereum (ETH) is a “security” and whether Prometheum, as a digital asset securities special purpose broker-dealer (SPBD), is in violation of regulations by offering ETH custody services.
(Background: Shocking! SEC investigates Ethereum Foundation, ETH may be classified as a security? Spot ETF approval probability drops again)
(Background: Bloomberg analyst: Ethereum spot ETF will not be approved in May! ETH briefly plummets to $3,150)
Contents of the article:
Is Prometheum’s provision of ETH custody services in violation?
Legislators urge the SEC to clarify whether Ethereum is a “security”
SEC investigates Ethereum Foundation
Members of the U.S. Congress are once again pressuring the Securities and Exchange Commission (SEC) to clarify whether Ethereum (ETH) is a “security.”
Two influential Republican members of Congress – Patrick McHenry, chairman of the House Financial Services Committee, and Glenn “GT” Thompson, chairman of the Agriculture Committee – today (27th) issued a joint letter, requesting SEC Chairman Gary Gensler to clarify how Prometheum, as the first digital asset securities special purpose broker-dealer (SPBD), will be able to legally provide ETH custody services to clients before ETH is classified as a “security.”
Prometheum is a registered digital asset company with the SEC and the Financial Industry Regulatory Authority (FINRA). Its subsidiary, Prometheum Ember Capital, LLC, obtained a digital asset securities special purpose broker-dealer (SPBD) license from the SEC and FINRA in May, allowing the company to act as a custodian of digital asset securities on behalf of retail and institutional clients.
Is Prometheum’s provision of ETH custody services in violation?
With Prometheum announcing in February that it will launch ETH custody services in the first half of this year, the controversy over whether Ethereum is considered a “security” by the SEC has escalated. According to SEC regulations regarding digital asset securities special purpose broker-dealers (SPBD), Prometheum’s services are limited to digital asset “securities” and do not have the authority to act as a custodian for traditional securities or non-securities digital assets.
Therefore, some cryptocurrency-friendly members of Congress are urging the SEC to clarify whether ETH is a digital asset security and whether Prometheum’s provision of ETH custody services as an SPBD is illegal. The joint letter, signed by 48 members of Congress, states:
(Extended reading: U.S. Congressman accuses cryptocurrency broker Prometheum of being related to the Chinese Communist Party! Calls on SEC and Department of Justice to launch an investigation)
The legislators also criticized Gensler for not directly stating whether ETH is a security. They pointed out that SEC staff had stated in 2018 that ETH is not a security, and Gensler had publicly stated in the same year during a lecture that tokens such as Bitcoin and Ethereum are “not securities.”
Furthermore, the SEC approved Ethereum futures ETFs to trade on platforms regulated by the U.S. Commodity Futures Trading Commission (CFTC) last year. The chairman of the CFTC has publicly announced multiple times that ETH, like Bitcoin, is a commodity and should be regulated by the agency.
The letter also points out the serious consequences that listing ETH as a “security” could have, potentially preventing derivatives exchanges registered with the CFTC from offering ETH futures-related products and jeopardizing Ethereum futures ETFs, even leading to significant price chaos in the entire ETH market. Legislators emphasize in the letter:
Coindesk reported that the SEC spokesperson declined to comment on this joint letter, stating that Gensler will “respond directly to the legislators,” while a Prometheum spokesperson stated that company officials are still reviewing the letter.
However, it is worth noting that recent signs indicate that the SEC seems to be actively taking action to classify Ethereum as a security. According to a recent report by Fortune, the SEC is investigating the Ethereum Foundation and has already issued subpoenas to at least three companies, requesting them to provide more documents and financial records related to their dealings with the Ethereum Foundation.
Insiders say that this investigation began shortly after the Ethereum merger from Proof-of-Work (PoW) to Proof-of-Stake (PoS) network in September 2022. After the transition to PoS in September 2022, Gensler had previously warned that PoS cryptocurrencies could be subject to securities regulation.
With the possibility of the SEC classifying Ethereum as a security increasing, Eric Balchunas, a senior ETF analyst at Bloomberg, has significantly reduced the probability of an Ethereum spot ETF being approved in May from 70% at the beginning of the year to 25%. He claims that it is now almost confirmed that ETH is considered a security in Gensler’s mind.
Related reports
Opinion: Why the SEC “Should Not” Classify Ethereum as a Security?
Bloomberg analyst: Ethereum spot ETF will not be approved in May! ETH briefly plummets to $3,150
Difficulties for Ethereum spot ETF in May? SEC’s attitude is negative, anti-crypto lawmakers intervene…
Should we be prepared for the rejection of an Ethereum spot ETF? Three reasons the SEC may reject it.