- Ether dropped to near $3,200 and other cryptos turned lower as the regulatory headwind weighed on the market.
- Ether-based spot ETFs likely won't get approved by the SEC in May, Bloomberg analysts said Tuesday.
Ethereum's ether (ETH) tumbled as much as 6% Wednesday amid concern much-hoped-for ETH exchange-traded funds face a roadblock to U.S. approval.
CoinDesk reported earlier in the day that the Ethereum Foundation, the non-profit organization that helps develop the blockchain behind the second-largest cryptocurrency, faces a confidential inquiry from an unnamed government. Not long after, Fortune said the U.S. Securities and Exchange Commission is waging a campaign to classify the Ethereum blockchain's native token as a security, beginning a probe after Ethereum moved to a proof-of-stake network in 2022.
In the aftermath, ETH dropped to $3,200. Bitcoin (BTC), the largest cryptocurrency, dropped to around $62,000 after bouncing to near $64,000 earlier. The broad-market CoinDesk 20 Index (CD20) fell 3%.
"I do think this relates to the ETF … The SEC has been in an untenable position for some time with its position on ETH,” said Scott Johnson, general partner at Van Buran Capital in a post on X. “This is in my opinion either an attempt to maintain its ambiguity for just a bit longer or the SEC is going nuclear option.”
Designating ETH as a security could complicate efforts to create ether ETFs in the U.S. The SEC has a May deadline to decide on approval. An analyst at Bloomberg Intelligence on Tuesday said he doesn't expect such a fund to get approved by May, given the regulator's lack of engagement with potential issuers – a contrast to the active conversations around spot bitcoin ETFs before they got the green light in January.
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Earlier Wednesday, the SEC delayed its decision on VanEck’s proposed ether ETF.
UPDATE (March 20, 2024, 17:33 UTC): Updates with a quote from Scott Johnson, general partner at Van Buran Capital.