Scott Johnsson, financial lawyer and general partner at Van Buren Capital, provided a nuanced explanation. analysis of the Securities and Exchange Commission's (SEC) motivations for launching an investigation into ethereum and the ethereum Foundation. His insights, shared via X on March 22, offer a deep dive into the possible motivations for the agency to investigate the Swiss-based ethereum Foundation.
Johnsson began by highlighting the market's deep reliance on ethereum's classification as a non-security, a stance historically recognized by the SEC and other regulatory bodies. He highlighted the importance of this classification for the functioning of various market mechanisms, stating:
Paul (Grewal, Coinbase CLO) gives a good overview of the SEC's historical recognitions regarding eth's non-security status. This is the current landscape that the market has relied on, including the CFTC, CME, ETFs, exchanges, and investors. Dependency interests are incredibly high.
Is thwarting ethereum spot ETFs the main goal?
A key aspect of Johnsson's analysis revolves around the SEC's possible motives for reconsidering the status of ethereum at this particular juncture. He suggests the regulator is navigating a complex landscape, balancing the need to enforce securities laws with the market's reliance on existing classifications.
“Beyond simple anti-cryptocurrency animus, it's worth thinking about why the SEC is choosing this moment to potentially re-evaluate eth's status as unsecured and what may be motivating them specifically. The reason lies with opportunity,” explains Johnsson.
Additionally, he speculates on the SEC’s strategy regarding eth spot exchange-traded funds (ETFs) and its broader implications: “My view, and there are other reasonable views, is that the SEC needs a non-correlation objection.” to deny eth spot ETFs this year. and wants to avoid undermining the arguments for CB/Binance actions, which together represent the two biggest crypto issues the agency is handling.”
Johnsson points out the challenges inherent in the SEC's path, particularly maintaining a consistent approach to cryptocurrency regulation so as not to prejudice its own arguments in the cases against Coinbase and Binance. He notes: “And if the SEC learned anything from btc ETFs, it is that it needs to be very careful about the reasoning provided in denials and, specifically, that it forms a coherent whole in similar orders. “Grayscale won because the SEC made logical errors in approving futures and denying spot over time.”
The financial lawyer also delves into the technical aspects of correlation analysis, a critical factor in the SEC's decision-making process for ETF approval. He explains: “Using the methodology I believe the SEC will rely on, the CME futures: spot correlation IS INCREASING and the most recent periods are mostly within an acceptable range (i.e. aligning with the levels of btc approval). At least according to internal calculations.” Therefore, the SEC cannot reject a spot ETF on this basis.
Johnsson underlines the delicate balancing act of the SEC, which cannot second-guess its previous decisions but at the same time has to deny the eth spot ETF to satisfy its backers. He articulates: “This kills a few birds: 1) reinforces the credibility of CB/Binance's arguments, 2) denies eth spot ETF with optionality for 2025, and 3) satisfies Gary's backers. All this while avoiding (for now) blowing up CME futures, an interagency fight, and invalidating futures ETFs (joining the SEC in litigation).”
Earlier this month, Democratic Senators Jack Reed and Laphonza Butler called on SEC Chairman Gary Gensler to halt the approval of additional spot crypto ETFs. Senator Elizabeth Warren has also expressed strong criticism of these financial products. Last year, Butler backed Senator Elizabeth Warren's controversial Digital Asset Anti-Money Laundering Act by co-sponsoring the bill.
At the time of this publication, eth was trading at $3,526.
Featured image created with DALL·E, chart from TradingView.com
