According to Alex Thorn, head of research at Galaxy Digital, the US Securities and Exchange Commission (SEC) may take an unexpected stance on the approval of staked Ethereum exchange-traded funds (ETFs).
In a recent post on 21 May, Thorn speculated that the SEC may differentiate between Ethereum and staked Ethereum, possibly labelling the latter as a security.
“If the speculation about a 180 from SEC on the Ethereum ETFs is true, I would guess they try to thread a needle between ‘ETH’ NOT being a security and ‘staked ETH’ (or even more flimsily, ‘staking as a service ETH’) as BEING a security.” – Alex Thorn
Such a distinction could have notable implications for Ethereum spot ETFs, which the SEC has been reluctant to approve.
Thorn suggests that this shift in strategy would coincide with the SEC’s current litigation and investigations, potentially allowing the commission to sanction Ethereum ETFs while maintaining consistency with its previous stances. However, Thorn notes that this approach could mean that spot Ethereum ETFs will be subject to certain restrictions.
“In this case and perhaps for other reasons, you would expect SEC to prohibit the ETFs from staking the ETH they hold.” – Alex Thorn
By distinguishing between ETH and staked ETH, the SEC could manoeuvre through complicated regulatory terrain, potentially facilitating the launch of Ethereum ETFs while maintaining strict regulations on staked assets and alternative cryptocurrencies. However, the specific treatment of tokenised iterations of Ethereum or bitcoin for layer 2 solutions (including lending) remains uncertain.
Meanwhile, Ethereum experienced a remarkable surge of over 17% after reports surfaced that the SEC might actually approve spot ETH ETFs, contrary to the previous market consensus that the regulator would not grant approval.
Bloomberg senior analyst Eric Balchunas, who was once sceptical about the chances of Ethereum spot ETFs being approved, reversed his stance on 20 May. In a recent post, he increased the likelihood of approval from 25% to 75%, suggesting that the SEC’s expedited process may be due to political pressure, given its previous minimal engagement with ETF applicants.
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