SEC is expected to make a decision on the Ethereum spot ETF later this month. If rejected, analysts at J.P. Morgan believe that the SEC may face legal challenges and lose, similar to the situation with the Bitcoin spot ETF.
Recently, the U.S. Securities and Exchange Commission (SEC) issued Wells Notices to Consensys, the parent company of Metamask, Uniswap, and Robinhood Crypto (RHC), the cryptocurrency division of Robinhood, warning of potential lawsuits.
In response, analysts at J.P. Morgan, led by Nikolaos Panigirtzoglou, released a research report on Wednesday stating that the notices should be seen as the SEC’s continued attempt to strengthen its position that all cryptocurrencies other than Bitcoin and Ether should be classified as securities.
In addition to offering BTC and ETH, Robinhood also offers trading of 13 other cryptocurrencies such as AAVE and LINK. The trading platform reported strong first-quarter revenue growth of 40% due to the surge in cryptocurrency trading. This may be one of the reasons why it has caught the attention of the SEC.
J.P. Morgan states that the SEC’s legal actions against cryptocurrency exchanges seem to aim at influencing U.S. policymakers and legislators who will eventually be responsible for formulating regulations for the cryptocurrency market.
On the other hand, the SEC is expected to make a final decision to approve or reject at least one Ethereum spot ETF application by the end of May. Analysts believe that there is a high probability that the Ethereum spot ETF will not be approved this month, but the market is unlikely to be greatly disappointed as this result has already been anticipated.
This can be seen from the significant discount of Grayscale Ethereum Trust Fund (ETHE) relative to its net asset value.
Furthermore, analysts further predict the consequences after the rejection. In October last year, the SEC approved 9 Ethereum futures ETFs for trading in the U.S. market, which were introduced by several investment companies including ProShares, VanEck, Bitwise, and Valkyrie.
Previously, one of the key reasons why a Bitcoin spot ETF was eventually approved was Grayscale’s victory in its legal battle with the SEC on August 29 last year. The key to the victory was Grayscale’s protest against the SEC’s approval of leveraged Bitcoin futures ETFs while failing to provide sufficient reasons to continue rejecting the conversion of GBTC into a Bitcoin spot ETF.
Ultimately, the judge overturned the SEC’s decision to reject the conversion of GBTC into an ETF, stating that “the rejection of Grayscale’s proposal was arbitrary and capricious because the SEC failed to explain its differing treatment of similar products.”
Analysts generally believe that Grayscale’s legal victory provides a basis for future cases, and if rejected again, issuers can refer to this case to file lawsuits, posing a high risk of the SEC losing.
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