Ethereum ETF Approved but Regulatory Clarity Remains Elusive. What’s Next?

• Gary Gensler defends his position over the redundancy of crypto legislation while accepting Ethereum ETFs.
• However, industry experts predict a renewed federal stance on crypto regulations following the approval of the ETFs.
• Does something (or someone) have to give?

Reports from CoinDesk suggest there is a growing divide between SEC operations and the White House’s view on the future of crypto in the US. The Joe Biden-appointed chair of the SEC, Gary Gensler, has always taken a tough stance on the cryptocurrency industry, believing that the vast majority of significant altcoins are US Securities.

This article will not investigate whether the proclaimed list of cryptocurrencies should or should not be registered as American Securities but uses this discourse, along with the Ethereum ETF narrative, to analyze the future of American crypto regulation.

When asked in 2023 whether or not he thought Ethereum was a US Security, Gensler notably ‘dodged’ the question, suggesting he did not want his comments either way on the record. However, it was clear to many industry leaders that he believed Ethereum (ETH), along with multiple other leading cryptocurrencies, was indeed a Security.

So, why is this important now?

The SEC Chair’s hard stance on crypto has dampened the industry’s growth worldwide. Despite this, the crypto tide has seen a significant upturn over the last 12 months, leading many US regulators and voices of authority — including the White House — to begin asking questions about new crypto legislation.

Mr Gensler’s attitude remains unturned, leading to reports via CoinDesk stating that he is polarizing himself against other key regulators in America.

With all this in mind, the SEC, chaired by Gary Gensler, has just approved 8 Ethereum ETFs. While details are yet to be finalized, these developments mark a titanic shift in the SEC’s attitude towards the industry — particularly the altcoin industry — as of 12 months ago.

The acceptance of 8 Ethereum ETFs suggests that the SEC is preparing for a heightened stance on crypto regulation, appeasing many American crypto firms. Coinbase, led by Brian Armstrong, has led the discourse around ‘regulatory clarity.’

Regulatory clarity is overdue for our industry. Yet Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business.

Alex Thorn, Head of Firmwide Research at Galaxy, believes that the SEC could take a two-pronged approach to Ethereum regulation.

• Ethereum ETFs can be accepted under the SEC’s current regulatory stance, provided the Ether isn’t staked to earn passive income.
• Staked ETH tokens could be viewed as security; thereby, staked Ethereum ETFs would not be acceptable.

This would allow a greater scope of crypto adoption in the US without the SEC significantly pivoting from its current methodology. It would, however, contribute to more comprehensive regulation and, crucially, regulatory clarity.

It’s very arguable that the ETF approvals are probably the beginning of a more seismic shift in American crypto policy. Support for Mr Gensler’s hardline against crypto appears to be dwindling.

[Further regulation] would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.

How do we make sense of this?

Despite Gary Gensler’s claims, the Ethereum ETFs have been approved. With this development, further legislation is highly anticipated. The US general election is also scheduled for the end of 2024 and is likely to play its part in proceedings as well.

The Biden administration (Democratic Party) appointed Gary to chair the SEC. A continued tough stance on crypto regulations could be politically threatening to the Democratic Party, particularly if Republican candidates begin to formulate pro-friendly crypto policies. Forbes reported that millions of crypto-holding voters reside in crucial swing states that dictated the election 4 years ago.

These developments could be the cause behind the beginning of a fracture emerging between the SEC chair and other leading regulators — this is something only time will tell us.

One thing is certain: increased crypto regulation will lead to further industry adoption and proliferate the industry’s growth. Additionally, scalable and secure regulatory solutions will become increasingly prevalent to aid firms’ compliance with renewed legislation.

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