June 18, 2024


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Ethereum ETFs may have ended the SEC's war on cryptocurrencies

Ethereum ETFs may have ended the SEC's war on cryptocurrencies

May Approval of spot ETFs issued by the US Securities and Exchange Commission (SEC) was the chef's kiss for what can only be described as a banner month for cryptocurrency policy — and the move could severely undermine… Ongoing SEC crackdown on cryptocurrencies.

As the deadline for approving Ethereum ETFs approaches, a bipartisan group of House members He sent a letter to SEC Chairman Gary Gensler He urged the committee to not only approve the funds, but also to consider approving ETFs for “other” digital assets in the future. Finally, the Securities and Exchange Commission (SEC) finally came into its own late on that fateful Thursday and announced its approval of eight spot applications for Ethereum ETFs.

According to Coinbase's Legal Director, Paul Grewal, the SEC's approval of spot ETFs is effective. Ethereum (ETH) to be a commodity. If Grewal is right Evaluate itthe ETH commodity will fall under the supervision of the Commodity Futures Trading Commission (CFTC) instead of the Securities and Exchange Commission (SEC), which is charged with regulating securities.

This is a key distinction for ETH, because the SEC's mission is to monitor securities and protect investors. Instead, the CFTC regulates commodities such as raw materials and agricultural commodities, with a focus on preventing market manipulation and fraud. Thus, the CFTC's regulatory framework for commodities is generally less stringent than the SEC's treatment of securities.

As digital assets continue to gain widespread adoption, there remains an ongoing debate over which federal agency should have jurisdiction over the regulation and enforcement of this new and innovative technology.

Back in 2021, former CFTC Commissioner Don Stump He gave a speech On Infamous Now Status of XRP SEC enforcement actionsIt noted that it is “closely monitoring the outcome of this case because it will help define the scope of the SEC’s authority in the field of digital assets.”

Commissioner Stamp added:

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Regulatory enforcement of digital assets, like the assets themselves, is evolving every day. It's exciting, but also frustrating for those looking for more certainty. But incredible transformation in this area requires adaptation and creative thinking, which, let's be honest, is not a regulator's natural inclination. …This is where digital asset regulation currently stands: we must empower innovators to think creatively so that the story can evolve, we must acknowledge that there will be differences of opinion about the usefulness and potential of different products, and we must expect some storms to occur. These are considerations that should guide us as regulators in exercising powers to achieve our mission so that the market can develop and achieve its full potential.

ETF approval may provide the kind of regulatory clarity this sector has been looking for. If Ethereum and other similar cryptocurrencies are not securities, the SEC lacks jurisdiction to regulate these assets under the Securities Act of 1933 and the Securities Exchange Act of 1934.

This means that the SEC can no longer say that these tokens are investment contracts under the Howey Test. If Ethereum and tokens like it were commodities, cryptocurrency lawyers could argue in court that these cryptocurrencies are not investment contracts that come with “an expectation of profits from the efforts of others” — important elements that the SEC must prove under the Howey Test.

More importantly, by implicitly acknowledging that Ethereum is a commodity, the SEC may have just undermined its own legal arguments raised in several pending cryptocurrency enforcement court cases.

If the courts are receptive to ETH and perhaps other cryptocurrencies as commodities, it could turn the tide of pending SEC lawsuits against major cryptocurrency exchanges like Coinbase and Kraken. These lawsuits rely on the SEC's argument that tokens traded on these platforms are securities. But if Ethereum and similar tokens are commodities instead, that could greenlight a renewed movement to dismiss lawsuits brought by the SEC against both Coinbase and Kraken.

If the federal judges in these cases agree with this argument, it would essentially overturn the SEC's claims that both Coinbase and Kraken offer unregistered securities trading.

Such a ruling would deal a devastating blow to SEC Chairman Gary Gensler, who is already under intense scrutiny from critics who believe his aggressive approach to regulation through enforcement actions is stifling the growth of the U.S. digital asset technology sector — and driving innovation. abroad to more suitable jurisdictions.

As observed in Grewal recently Twitter Share (aka X).Now that the SEC has effectively said that “ETH sales cannot be securities because Ethereum ETFs may be registered through S-1 funds,” the SEC has essentially agreed that ETH is no longer… It has no more “ecosystem” than Bitcoin.

The recent SEC approval of Ethereum ETFs has profound potential implications for pending and future legal battles in the digital asset sector. By stating that ETH and other similar tokens are commodities, the SEC may have significantly limited its ability to aggressively police the cryptocurrency sector.

Thus, the Ethereum ETF decision may encourage players in the digital asset sector to push back against excessive enforcement actions, leading to fewer settlements and more court battles.

Gaining long-awaited clarity on whether ETH is a security or a commodity may also limit the SEC's jurisdiction over Ethereum and other similarly situated cryptocurrencies. This, in turn, could lead to a significant narrowing of the SEC's regulatory scope in the digital assets sector. Cryptocurrency lawyers will no doubt use the ETF's decision to forcefully respond to the SEC's pending enforcement actions and lawsuits, arguing that the agency has exceeded its mandate.

If more digital assets are treated as commodities similar to what the ETF decision suggests, lawmakers may finally pass laws to significantly limit the SEC's access to these assets. As a result, these tokens could be subject to less stringent regulation under the Commodity Futures Trading Commission (CFTC). Such a shift in agency oversight would create fewer regulatory hurdles for emerging cryptocurrency companies and foster a new wave of innovation in the sector.

Cryptocurrency lawyers are likely to benefit from the ETF's decision to reshape current strategies regarding how it advises clients in the digital asset space. These strategies may include advising crypto sector clients to focus more on the commodity nature of their tokens and platforms, in an effort to better insulate them from the reach of the SEC.

If Coinbase and Kraken's legal defense teams are successful in dismissing the pending SEC lawsuits based on the Ethereum ETF decision, this could create very favorable legal precedents that would impact future regulation of the digital asset sector — and usher in a new wave of Blockchain innovations. in the United States

A new era of clarity regarding digital asset laws would also benefit investigators and attorneys working at both the SEC and CFTC, by creating a more stable and predictable regulatory environment. This would lead to a more efficient use of agency resources, in contrast to the ambiguous legal environment in which we currently operate. Regulatory clarity would also bring much-needed consistency to judges presiding over digital asset cases, and generate more consistent and predictable outcomes.

I firmly believe that cryptocurrency lawyers are the custodians of the blockchain, and play a vital role in the continued growth and adoption of crypto technology in the United States. The recent Ethereum ETF decision will only enable cryptocurrency lawyers to better advise clients and navigate the digital asset sector – and I'm excited to see how they creatively use this opportunity to do so.

Edited by Andrew Hayward