Filing shows SEC potentially considering ETH a security in likely ETF denials, analysts say

Van Buren Capital General Partner Scott Johnsson unearthed Tuesday an overlooked detail in a March filing, resurfacing the suggestion that the U.S. Securities and Exchange Commission may consider ether a security ahead of expected spot exchange-traded fund denials this month.

“I'm aware this is widely considered a possibility, but this is your official notice that the SEC is considering the security question for ETH +2.50% in this upcoming spot ETF order,” Johnsson said . “Note that this question was never (afaict) asked regarding a spot/futures BTC ETF product.”

“The obvious purpose is to potentially deny on the basis that these spot filings are improperly filed as commodity-based trust shares and do not qualify if they are holding a security,” Johnsson added .

The question referenced was found in a filing related to BlackRock’s spot ether ETF application, among others, asking, “Given the nature of the underlying assets held by the Trust, has the Exchange properly filed its proposal to list and trade the Shares under Nasdaq Rule 5711(d), Commodity-Based Trust Shares?”

Specifically, the rule defines the term “Commodity-Based Trust Shares” as a security "(1) that is issued by a trust that holds (a) a specified commodity deposited with the trust, or (b) a specified commodity and, in addition to such specified commodity, cash; (2) that is issued by such trust in a specified aggregate minimum number in return for a deposit of a quantity of the underlying commodity and/or cash; and (3) that, when aggregated in the same specified minimum number, may be redeemed at a holder’s request by such trust which will deliver to the redeeming holder the quantity of the underlying commodity and/or cash,” according to the filing.

‘Slim to none’ odds of spot ether ETF approval

“TLDR: the SEC asked commenters regarding the ether spot ETFs whether these filers have properly filed their ETF listing proposals as commodities,” Bloomberg ETF analyst Eric Balchunas explained . “This shows the SEC is perhaps considering ETH is a security in their denial. Our odds of approval remain the same: slim to none.”

Fellow Bloomberg ETF analyst James Seyffart agreed.

“Looks like odds just went up for SEC to deny Ethereum ETFs by claiming ether is a security. Not a guarantee that they will do this but I think this almost guarantees that the SEC is at least considering it. First I've seen in public SEC documents,” he said.

“I personally still think it's more likely that the SEC does not claim Ethereum to be a security in these denials that are coming over the next week or so. But we'll know soon enough,” Seyffart added.

Nate Geraci, President of The ETF Store, was not so sure, asking if the SEC deems ether a security, then why did the agency already approve ether futures ETFs. One community member responded that the SEC could say ether is a security “because those ETFs are ‘40 Act funds that can hold commodity or security futures.”

However, that would set off an “interagency conflict after SEC implicitly accepted ether as non-security commodity for years,” Geraci said, adding that it was the “nuclear option,” especially in a U.S. election year.

The SEC has key deadlines coming up on May 23 and May 24 to decide whether to approve the applications for spot ether ETFs submitted by VanEck and ArkInvest/21 Shares, respectively.

Last month, MetaMask developer Consensys alleged the SEC considered ether to be a security over a year ago after receiving a Wells notice from the agency — meaning the SEC plans to bring an enforcement action against the firm.