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Alex Thorn, head of firmwide research at Galaxy Digital, suggests that the approval of spot Ethereum exchange-traded funds (ETFs) in May is now highly doubtful. Recent developments, including SEC subpoenas and a lack of engagement, contribute to this skepticism, Thorn stated in a note on Friday.
Reports indicating that the Securities and Exchange Commission (SEC) has issued subpoenas to crypto firms regarding their ties to the Ethereum Foundation, combined with the SEC’s apparent disinterest in engaging with ETF applicants just two months before the initial deadline, have raised significant doubts about approval in May, according to Thorn.
Fortune’s recent report highlights the SEC’s active legal efforts to classify ether (ETH) as a security, citing subpoenas received by U.S. companies as part of an investigation. Additionally, The Block reported that the Ethereum Foundation received a confidential inquiry from a state authority, leading to the removal of the “warrant canary” from its website.
Thorn, a former Fidelity Investments veteran, speculates that the SEC’s interest in crypto firms’ interactions with the Ethereum Foundation may involve investigating whether Ethereum’s initial coin offering (ICO) in 2014 constituted an unregistered securities offering. He suggests that while the SEC may differentiate between the ICO and the current secondary trading of ETH, any enforcement action against the Ethereum Foundation after almost a decade would be highly irregular.
SEC Chairman Gary Gensler has declined to comment on whether the agency considers ETH a security. However, the SEC reportedly views Ethereum’s 2022 “Merge” upgrade as potentially strengthening the argument that ETH is a security due to the network’s transition to proof-of-stake. Despite this, the SEC permitted the launch of several futures-based Ethereum ETFs in 2023, a year after Ethereum transitioned to PoS.
Thorn argues that if the SEC pursues allegations of securities violations against ETH or the Ethereum Foundation, it would tread on uncertain legal ground and potentially impact an industry that has existed for over a decade.
This perspective aligns with market experts’ doubts about the approval of a spot Ethereum ETF by May. Bitwise CIO Matt Hougan has suggested that delaying approval could be advantageous, allowing Wall Street to digest spot bitcoin ETFs before focusing on new ones. He believes that a later approval might attract even more assets.
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