According to industry experts, the reported investigation into the Ethereum Foundation could be part of a coordinated attack against Ethereum and could be used as a reason to reject or delay spot Ethereum exchange-traded funds. On March 20th, Fortune reported that the United States Securities and Exchange Commission had issued several subpoenas to companies working with the Ethereum Foundation.

SEC’s Move on Ethereum

Sources familiar with the matter said the commission launched a campaign in 2022 to classify Ethereum as a security. Coinbase’s Chief Legal Officer Paul Grewal pointed out that SEC Chairman Gary Gensler once testified before Congress that Ethereum was not a security:

“We hope that the SEC will not try to invent a security by questioning the long-established regulatory status of Ethereum, which the SEC has repeatedly confirmed. Laws do not work that way.”

Travis Kling, Chief Investment Officer at Ikigai Asset Management, stated in a March 20th post that it now seems very clearly like a coordinated attack against Ethereum. Fox Business reporter Eleanor Terrett suggested that the subpoenas could explain why the securities regulator appears reluctant to engage with potential spot Ethereum ETF issuers.

Bloomberg ETF analysts Eric Balchunas and James Seyffart recently reduced the likelihood of an approved spot Ethereum ETF from 70% to 25% by May, one of the main reasons being the regulator’s apparent lack of engagement. Meanwhile, House Financial Services Committee Chairman Patrick McHenry and others have shared their disapproval of the reported move, saying it would be contrary to the regulator’s previous actions.

Key Details on the Process

Brian Quintenz, a former member of the Commodity Futures Trading Commission, argued that the SEC had clearly acknowledged Ethereum’s non-security status when it approved Ethereum futures ETF applications last October.

However, Charles Hoskinson, founder of Cardano, believes that the SEC may have changed its mind about Ethereum’s security status after Ethereum’s transition to a proof-of-stake contract mechanism in September 2022. Quintenz countered that the SEC would have included Ethereum’s Merge in its decision to approve Ethereum futures ETF applications, as the former event occurred before the latter.

Quintenz explained that if Ethereum were classified as a security, it would mean that Ethereum futures ETF funds listed on the CFTC would be illegal, as any derivative of Ethereum would be considered a security futures contract and thus subject to different rules.