Elusive Status: Is ETH Finally a Commodity? The SEC’s Recent Moves Spark Debate
In a move that has sent ripples through the crypto world, the U.S. Securities and Exchange Commission’s (SEC) approval of spot Ethereum products has left investors and analysts scratching their heads — has ether (ETH) finally been anointed as a commodity? The answer, it seems, is still up in the air.
The ambiguity surrounding the SEC’s jurisdiction over ether has been a long-standing issue. SEC Chair Gary Gensler has been notably cagey, never explicitly labeling ether as a security. However, Consensys, a major player in the crypto space, recently claimed in a complaint that the SEC has indeed considered ether to be a security.
On the flip side, the Commodity Futures Trading Commission (CFTC) has been more forthright. CFTC Chair Rostin Behnam has confidently asserted that ether is a commodity.
The plot thickened this past Thursday when the SEC gave the green light to 19b-4 forms for eight Ethereum ETFs. However, before these ETFs can start trading, issuers must have their S-1 registration statements go effective. Legal eagles are divided on whether the SEC’s approval signals a shift in ether’s classification.
“This is a watershed moment in the long-running debate about ETH’s status,” said Paul Grewal, Chief Legal Officer at Coinbase, in an interview with The Block. “For too long, the SEC has played hide the ball on its position as to whether or not ether is a security, a non-security, a commodity, or something else altogether.”
Grewal pointed out that since issuers used the form S-1, it implies that a certain percentage of assets in the fund could be securities.
“By designating the S-1 as the registration of choice, what the SEC is saying is that these funds, by definition, do not include assets that have more than 40% of their portfolio in securities,” Grewal explained. “There’s no way to square that with any other conclusion than ether is not a security.”
The SEC has yet to comment on the matter, leaving the crypto community to speculate.
Coy Garrison, former counsel for SEC Commissioner Hester Peirce and now a partner at Steptoe LLP, also weighed in, asserting that ETH must be a commodity following the approval of the spot Ethereum ETFs.
“The SEC’s approval order confirms that ETH is a commodity,” Garrison said in an email to The Block. He noted that in the SEC’s order approving the Ethereum products, the funds are referenced as “commodity-based trust shares.”
Let’s break it down further. Ashley Ebersole, the top legal honcho at 0x Labs, who’s also a former SEC big shot, says the SEC’s approval doesn’t mean they’ve made up their minds about ether’s status. They can still flip the script and say ether’s a security whenever they feel like it. Ebersole’s thinking is crystal clear: just because the SEC nodded to ETH in the ETF process doesn’t lock them into saying it’s a commodity or a security. They’re keeping their cards close to their chest.
And here’s where it gets even juicier. Martin Auerbach, a legal brainiac at Withersworldwide, draws a parallel with gold-based ETFs. Gold isn’t a security, but there are ETFs based on it. So, the SEC can green-light an ETF involving ETH without nailing down if ETH itself is a security. Auerbach’s on point here: the SEC can approve trading the ETF as a security without putting a label on ETH. They’ve been dancing around calling ETH a security, and they haven’t straight-up labeled it a commodity either.
But hang on, it’s about to get even more twisted. The whole staked ether situation is a wild ride on its own. The SEC’s been busy bees these past few years, slapping lawsuits and hinting at enforcement actions left, right, and center. These moves suggest staked ETH, or ether staked through third parties, might get slapped with a different label altogether. According to the legal rumblings and a fresh-off-the-press report from Galaxy Digital Holdings, staked ether is likely to be tagged as an investment contract, which makes it a security.
“If ETH is a security, approval would not have been appropriate under these specific exchange rules,” Garrison emphasized.
So, is ether a commodity? The SEC’s recent moves suggest it might be. But until the regulatory fog lifts, the debate rages on, keeping the crypto community on its toes and the financial world buzzing with speculation.
Stay tuned, because in the world of crypto, the only constant is change.
