Coinbase’s Chief Legal Officer (CLO), Paul Grewal, has expressed concerns regarding recent reports suggesting that the U.S. Securities and Exchange Commission (SEC) is attempting to classify Ethereum (ETH) as a security. Grewal hopes that the SEC does not create reasons to question the regulatory status of ETH as a non-security, which could potentially hinder the approval of multiple ETH spot exchange-traded fund (ETF) applications.
Yesterday, Fortune reported that the SEC has ordered several U.S. crypto-related businesses to provide important documents and financial records pertaining to the Ethereum Foundation, as part of an ongoing investigation. While the SEC has not confirmed or denied these reports, the crypto community sees this as a potential obstacle that could impact the launch of ETH spot ETFs.
It is worth noting that asset managers such as BlackRock and Fidelity Investments have already filed to launch Ethereum funds in the United States. Despite the SEC’s decision to postpone the approval of some ETH ETF applications, experts still believe that at least one filing will be approved by May. However, if the SEC classifies ETH as a security, it could decrease the likelihood of an Ethereum spot ETF launching by May.
In response to these developments, Grewal argues that the SEC lacks justification to deny the multiple spot-based ETH ETF applications. He hopes that the commission does not create any reasons to question ETH’s established regulatory status as a non-security.
Grewal also highlights some key points that demonstrate Ethereum is not a security. He notes that the SEC has consistently regarded ETH as a commodity, allowing millions of Americans to hold the coin since its inception in 2015. Grewal references previous statements from senior SEC officials, such as former Director Bill Hinman and Gary Gensler, who declared Ethereum as a non-security. Additionally, Grewal mentions how the SEC’s lawyers compared ETH to Bitcoin in the commission’s lawsuit against Ripple. Both the Commodity Futures Trading Commission (CFTC) and the SEC agree that Bitcoin is a commodity, not a security.
Furthermore, Grewal argues that Ethereum does not satisfy all prongs of the Howey Test, a well-established securities test in the U.S. He asserts that Ethereum does not involve a contractual obligation related to a business enterprise and that the introduction of the Merge upgrade in 2022, which transitioned ETH to a Proof-of-Stake (PoS) algorithm from its original Proof-of-Work (PoW) model, does not automatically make ETH a security.
Based on these facts, Grewal maintains that Ethereum is not a security and that the SEC has no grounds to deny multiple applications for ETH spot-based ETFs.
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