SEC In ‘Deep Trouble’ With Crypto Cases After Ethereum ETF Approval, Here’s Why

On
Thursday,
the
US
Securities
and
Exchange
Commission
(SEC)
made
a

landmark
decision
by
approving
eight
spot
Ethereum
Exchange-Traded
Funds
(ETFs)
from
leading
financial
institutions
and
crypto
firms,
including
Grayscale,
Bitwise,
BlackRock,
and
ARK.
This
historic
approval,
which
consolidated
proposals
from
the
Nasdaq,
NYSE,
and
CBOE,
marked
a
significant
shift
in
the
regulatory
landscape
of
digital
assets.

Why
The
SEC
Is
In
‘Deep
Trouble’
With
Its
Crypto
Cases

However,
this
decision
comes
with
its
complexities,
particularly
in
light
of
ongoing
legal
challenges
involving
the
classification
of
other
cryptocurrencies.
Prominent
crypto
lawyer
James
“MetaLawMan”
Murphy

commented,
“I
believe
the
SEC
is
in
deep
trouble
with
some
of
its
crypto
cases
in
light
of
its
determination
that
ETH
is
a
commodity.”

He
emphasized
that
the
SEC
repeatedly
argued
in
the
Coinbase
case
“that
crypto
tokens
that
operate
within
an
‘ecosystems
are
securities.’
I
believe
the
SEC
will
have
difficulty
explaining
how
ETH,
which
operates
within
a
giant
ecosystem,
is
a
commodity,
but
SOL
and
ADA
are
securities
when
traded
on
Coinbase.”

This
statement
encapsulates
the
core
of
the
issue:
Ethereum
operates
within
a
robust
ecosystem
that
includes
not
just
investment
and
trading
but
also
decentralized
applications
and
smart
contracts,
similar
to
other
blockchains
like

Solana
and
Cardano.
The
distinction
made
by
the
SEC
might
complicate
its
stance
in
ongoing
and
future
litigation,
particularly
cases
involving
other
cryptocurrencies
that
operate
under
similar
paradigms
but
are
classified
differently.

Murphy
also
suggested
potential
legal
maneuvers
by
affected
parties:
“Coinbase
is
due
to
file
a
Reply
Brief
tomorrow
on
its
Petition
to
Certify
Interlocutory
Appeal.
It
would
not
surprise
me
if
they
also
filed
a
request
for
rehearing
of
their
motion
to
dismiss
in
light
of
the
fact
that
the
SEC
now
concedes
that
ETH
is
a
commodity.”

He
also
refers
to
Judge
Failla’s
earlier
ruling
in
the
Coinbase
case
where
she
bought
into
the
SEC’s
ecosystem
argument
and
used
it
as
a
basis
for
her
ruling.
“When
a
customer
purchases
a
token
on
Coinbase’s
platform,
she
is
not
just
purchasing
a
token,
which
in
and
of
itself
is
valueless;
rather,
she
is
buying
into
the
token’s
digital
ecosystem,
the
growth
of
which
is
necessarily
tied
to
the
value
of
the
token.”

Consensys,
a
major
Ethereum
software
developer,
also
expressed
concerns
with
the
SEC’s
decision-making
process,
suggesting
it
reflects
an
inconsistent
and
ad
hoc
approach
to
digital
asset
regulation.
In
a
statement,
the
company
said:
“This
seemingly
last
minute
approval
is
yet
another
example
of
the
SEC’s
troublesome
ad
hoc
approach
to
digital
assets.
No
other
industry,
market,
or
asset
is
subject
to
such
deliberate
regulatory
abuse.
It
is
unfair
to
market
participants,
antithetical
to
the
rule
of
law,
and
handcuffing
innovation.

On
today’s
SEC
ruling:

While
Consensys
welcomes
today’s
decision
to
approve
ETH
Spot
ETFs
as
a
step
in
the
right
direction,
this
seemingly
last
minute
approval
is
yet
another
example
of
the
SEC’s
troublesome
ad
hoc
approach
to
digital
assets.
No
other
industry,
market,
or…

—
Consensys
(@Consensys)

May
23,
2024

Sam
Callahan,
a
senior
analyst
at
Swan,

noted
a
key
omission
in
the
SEC’s
approval
document:
“Interesting
paragraph
in
the
SEC’s
Ethereum
ETF
approval
document.
The
SEC
basically
looked
at
the
ETF
products
and
whether
they
could
adequately
protect
investors
and
maintain
fair
markets,
and
that’s
about
it.
No
mention
of
securities
laws
or
ETH
classification.
No
mention
of
the

Howey
Test.”

Thus,
the
absence
of
a
clear
stance
on
Ethereum’s
classification
under
securities
laws
still
raises
questions
about
future
regulatory
challenges
and
implications
for
other
digital
assets.
“We
may
have
to
wait
for
a
statement
from

Gensler,
and
even
then,
he
could
sidestep
the
topic
altogether,”
Callahan
remarked.

At
press
time,
ETH
traded
at
$3,686.

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