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Ethereum ETF Approval in Limbo: SEC Issues Critical Notice

Ethereum ETF Approval in Limbo: SEC Issues Critical Notice

The U.S. Securities and Exchange Commission (S.E.C.) has released a noteworthy notification on approving an Ethereum Exchange-Traded Fund (ETF). The notification highlights the severe examination that the new ETF is subject to, and it was made public by financial attorney Scott Johnson. It also points out possible roadblocks on its way to approval.

The SEC will debate ETH for classification before deciding on an Ethereum ETF for ETH

Johnson, a well-known personality in the cryptocurrency world, disclosed the details of the formal notice on social media platform X. “This is your official notice that the S.E.C. is considering the security question for ETH in this upcoming spot ETF order,” he said, adding that “I’m aware this is widely considered a possibility.”

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The main question is whether the suggested Ethereum ETF complies with regulatory requirements. In particular, this considers that the investment instrument is classified as Commodity-Based Trust Shares under Nasdaq Rule 5711(d). In addition, Johnson cited concerns over the Trust’s underlying assets and classification to highlight the S.E.C.’s duty under 15 U.S.C. 78s(b)(2)(B) to give notice of the grounds for disapproval under review.

Johnson cites the formal notification, which reads as follows: “The Commission is providing notice of the grounds for disapproval under consideration by Section 19(b)(2)(B) of the Act. To enable further examination of the proposed rule change’s compliance with Section 6(b)(5) of the Act, the Commission is initiating proceedings.

Possible Repercussions For The Choice Of Ether ETF

In particular, the S.E.C. is looking into whether the Ethereum Trusts filed their request to legally list and trade the shares, considering the underlying assets’ characteristics and regulatory compliance. Johnson’s disclosure clarifies the possible obstacles the Ethereum ETF approval procedure may encounter. 

In an X post, he said, “The evident objective is to potentially refuse on the grounds that these spot filings are not eligible if they are holding securities and are incorrectly filed as commodity-based trust shares.” He also emphasised the S.E.C.’s contradictory positions on the Ethereum ETF ruling and the approval of the Spot Bitcoin ETF. 

Johnson emphasised that in contrast to ETH ETFs, the S.E.C. never questioned the classification of Bitcoin Spot/Futures ETFs. However, the Commodities Futures Trading Commission (CFTC) and Consensys’ lawsuits against the S.E.C have raised similar issues.

The SEC I debated whether to classify ETH as a security at Prometheum’s request. Still, the CFTC has always seen it as a commodity. Meanwhile, last month, Consensys, a creator of Ethereum, filed a lawsuit against the S.E.C. The company asked the authorities not to classify ETH as a security.

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