SEC’s Interest in Ethereum: 3 Theories by Crypto Lawyer

According to a crypto lawyer, the recent investigation into Ethereum and its foundation by the U.S. Securities and Exchange Commission (SEC) may be a tactic to prevent the approval of spot Ether (ETH) exchange-traded funds (ETFs) without undermining the SEC’s ongoing legal battles. The SEC is facing pressure from politicians who are against the approval of crypto ETFs, and the probe into Ethereum could be a way for the agency to appease these skeptics. The SEC may be using the investigation as a means to deny spot ETH ETFs by citing a lack of correlation between spot markets and futures markets.

The lawyer explains that denying spot ETH ETFs based solely on correlation analysis may not be a long-term solution, as the correlation levels are improving over time. Correlation refers to the difference in prices between spot markets and futures markets and has been a key factor in the SEC’s decision-making process for crypto ETFs. Some analysts suggest that the correlation between futures and spot markets for Ethereum is not as strong as it is for Bitcoin, making it more difficult for the SEC to use this as a reason for denial.

The SEC’s investigation into Ethereum could also be a way for the agency to navigate its legal actions against crypto exchanges Coinbase and Binance. By claiming an ongoing investigation into Ethereum’s security status, the SEC can avoid taking definitive enforcement actions against the exchanges. This approach allows the SEC to maintain its position without further complicating its legal battles.

Some experts argue that the SEC missed the opportunity to argue that Ethereum was a security when it approved Ethereum futures trading in October 2023. They believe that it is now too late for the SEC to make this argument and that it should not deny spot ETH ETFs if it has approved ETH futures ETFs. Coinbase’s chief legal officer echoed this sentiment, stating that the SEC has no valid reason to deny ETH ETF applications and should not question the established regulatory status of Ethereum.

In response to the SEC’s investigation, US Congressman Patrick McHenry criticized the agency, stating that its actions are contradictory to the assessment of the Commodity Futures Trading Commission (CFTC) and the SEC’s previous actions. McHenry emphasized that the jurisdiction and budget of the SEC are determined by Congress, and its chair cannot make decisions arbitrarily.

The SEC’s investigation into Ethereum could serve multiple purposes. It may satisfy politicians who are against crypto ETF approvals, provide a temporary reason to deny spot ETH ETFs, and allow the SEC to navigate its legal battles without undermining its arguments. The ultimate outcome of the investigation and its impact on the approval of ETH ETFs remains uncertain.