The reported probe into Ethereum and its foundation could be a way for the United States Securities and Exchange Commission to comfortably deny spot Ether (<a href="https://cointelegraph.com/ethereum-price">ETH</a>) exchange-traded funds (ETFs) and satisfy senator blowback without undermining its ongoing lawsuits, according to a crypto lawyer.
On March 22, general partner of Van Buren Capital and finance lawyer Scott Johnsson offered his opinion on why the SEC may have reportedly launched its probe into Ethereum and <a href="https://cointelegraph.com/news/sec-ether-security-classification">the Ethereum Foundation</a>. 
One of the theories, according to Johnsson, is that the SEC could be using the probe to placate crypto skeptics who have <a href="https://cointelegraph.com/news/senators-urge-sec-gary-gensler-reject-further-crypto-etfs">demanded a tougher stance</a> from the agency.
Earlier this month, Senators Jack Reed and Laphonza Butler urged SEC Chair Gary Gensler not to allow any further spot crypto ETF approvals. Senator Elizabeth Warren has also been extremely vocal in her disapproval of these investment products. 
Another theory, which has gained more traction on X lately, is that the SEC could be using it as a way to deny spot Ether ETFs — as a non-correlation objection may not hold up. 
“The SEC needs a non-correlation objection to deny ETH spot ETFs this year,” said Johnsson. 
The crypto lawyer explains that denying spot ETH ETFs solely based on correlation analysis may be a temporary solution, as correlation levels are improving over time.
Correlation describes the difference between the prices on spot markets and futures and has been a <a href="https://cointelegraph.com/news/coinbase-slams-senators-pressuring-sec-halt-crypto-ethereum-etf-approvals">key argument for the SEC</a> for approving or denying crypto exchange-traded products (ETPs). 
However, earlier this month, ETF analyst Eric Balchunas <a href="https://twitter.com/EricBalchunas/status/1766132086589841424" target="_blank" rel="noopener nofollow">said</a> that the “correlations between futures and spot isn’t as strong” before adding that he was “not nearly as optimistic here vs BTC ETFs.” 
Finally, Johnsson believes the probe would also help the SEC thread a needle: deny spot Ethereum ETFs while avoiding “undermining the arguments” in its legal action against Coinbase and Binance.
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 Source: <a href="https://twitter.com/SGJohnsson/status/1770920022463942972" target="_blank" rel="noopener nofollow">Scott Johnsson</a>
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In June 2023, the SEC accused Binance and Coinbase of offering unregistered securities,&nbsp;<a href="https://cointelegraph.com/news/sec-labels-61-cryptocurrencies-securities-after-binance-suit">naming 19 tokens</a>. However, ETH was not among them.&nbsp;
In an <a href="https://www.youtube.com/watch?v=lcHBwFKzVHY" target="_blank" rel="noopener nofollow">interview</a> with Bloomberg TV earlier this month, the SEC’s Gensler was asked directly about the status of ETH as a security, to which he replied with his usual vagueness, without answering the question. 
Ultimately, the SEC could end up pursuing a “soft approach” by claiming an <a href="https://cointelegraph.com/news/sec-ethereum-securities-probe-ploy-deny-ether-etfs">ongoing investigation</a> into ETH’s security status rather than making a definitive enforcement action, he postulated.
“We find motivation in the present for the SEC to further an investigation into ETH security status as an additional pretense to deny approval,” he stated. 
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 “Could the SEC go full scorched earth? Absolutely, but I’ll still hold my breath for the moment. I’ve heard reasonable arguments that this might be the case, so be warned.”
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Related: <a href="https://cointelegraph.com/news/coinbase-support-spot-ether-etfs-grayscale-ethereum-trust-in-letter-sec">Coinbase argues for spot Ether ETFs as analysts warn of ‘concentration risk’</a>
ETF Store president Nate Geraci said that the best time for the SEC to argue that ETH was a security was before it <a href="https://cointelegraph.com/news/ethereum-futures-etfs-launch-low-volume-trading-first-day">approved Ethereum futures</a> trading in October 2023, but they didn’t do that. 
“Also too late to make a correlation argument IMO,” he said before adding, “If ok with grandma buying ETH futures ETF, then why not spot?” 
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 Source: <a href="https://twitter.com/NateGeraci/status/1770962467595706482" target="_blank" rel="noopener nofollow">Nate Geraci</a>
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In response to the reported SEC Ethereum probe, Coinbase chief legal officer Paul Grewal <a href="https://twitter.com/iampaulgrewal/status/1770594634785542476" target="_blank" rel="noopener nofollow">argued</a>, “The SEC has no good reason to deny the ETH ETP applications.” 
He added, “We hope they won’t try to invent one by questioning the long-established regulatory status of ETH, which the SEC has repeatedly endorsed.” 
On March 21, U.S. Congressperson Patrick McHenry <a href="https://twitter.com/PatrickMcHenry/status/1770552440791736635" target="_blank" rel="noopener nofollow">commented</a> on the SEC’s move against Ethereum, stating, “This is contrary to the CFTC’s assessment and the SEC’s prior actions,” before adding: 
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 “Congress decides the SEC’s jurisdiction and budget, Chair Gensler doesn’t get to make it up as he goes along.”
</blockquote>
Magazine: <a href="https://cointelegraph.com/magazine/crypto-regulation-sec-chair-gary-gensler-final-say/">Crypto regulation — Does SEC Chair Gary Gensler have the final say?</a>

3 theories why the SEC may be eyeing down Ethereum: Crypto lawyer

Cointelegraph

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