48 members of the U.S. Congress signed a joint letter today, led by Patrick McHenry, Chairman of the House Financial Services Committee, urging Securities and Exchange Commission (SEC) Chairman Gary Gensler to clarify whether Ethereum (ETH) is a “security” and whether Prometheum, a digital asset securities firm, is in violation of providing ETH custody services.
Legislators urge SEC to clarify whether Ethereum is a “security”
SEC investigates Ethereum Foundation
U.S. Congress is once again pressuring the Securities and Exchange Commission (SEC) to clarify whether Ethereum (ETH) is a “security.”
Two influential Republican congressmen, Patrick McHenry, Chairman of the House Financial Services Committee, and Glenn “GT” Thompson, Chairman of the Agriculture Committee, led the effort in issuing a joint letter today, requesting SEC Chairman Gary Gensler to clarify how Prometheum, the first digital asset securities special purpose broker-dealer (SPBD), can provide legal ETH custody services to its clients before ETH is classified as a “security.”
Prometheum is a digital asset company registered with the SEC and the Financial Industry Regulatory Authority (FINRA). Its subsidiary, Prometheum Ember Capital, LLC, obtained the SPBD license from the SEC and FINRA in May, allowing the company to act as a custodian for digital asset securities on behalf of retail and institutional clients.
Is Prometheum’s provision of ETH custody in violation?
With Prometheum’s announcement in February that it would launch ETH custody services in the first half of this year, the controversy over whether Ethereum is considered a “security” by the SEC has escalated. According to SEC regulations regarding digital asset securities special purpose broker-dealers (SPBD), Prometheum’s services are limited to digital asset “securities” and do not have the authority to act as a custodian for traditional securities or non-securities digital assets.
Therefore, some cryptocurrency-friendly congressmen are urging the SEC to clarify whether ETH is a digital asset security and whether Prometheum’s provision of ETH custody services as an SPBD is illegal. The joint letter, signed by 48 members of Congress, states:
“Legislators also criticized Gensler for not directly stating whether ETH is a security. They pointed out that SEC staff stated in 2018 that ETH is not a security, and Gensler publicly stated during the same year in a lecture that tokens such as Bitcoin and Ethereum are ‘not securities.’
Moreover, the SEC approved Ethereum futures ETFs to trade on platforms regulated by the Commodity Futures Trading Commission (CFTC) last year. The chairman of the CFTC has publicly declared multiple times that ETH, like Bitcoin, is a commodity and should be regulated by that agency.
The letter also points out the serious consequences of classifying ETH as a ‘security,’ which could prevent derivatives exchanges registered with the CFTC from offering ETH futures-related products and jeopardize Ethereum futures ETFs, potentially leading to significant price chaos in the ETH market. Legislators emphasized in the letter:
Coindesk reported that the SEC spokesperson declined to comment on this joint letter, stating that Gensler will ‘respond directly to the congressmen.’ A Prometheum spokesperson stated that company officials are still reviewing the letter.
However, it is worth noting that recent signs indicate that the SEC seems to be actively considering classifying Ethereum as a security. According to a recent report by Fortune, the SEC is investigating the Ethereum Foundation and has issued subpoenas to at least three companies to provide more information and financial records related to their dealings with the Ethereum Foundation.
Insiders said that this investigation began shortly after Ethereum’s transition from proof-of-work (PoW) to proof-of-stake (PoS) in September 2022. After Ethereum’s transition to PoS in September 2022, Gensler warned that PoS cryptocurrencies could be subject to securities law regulation.
As the possibility of the SEC classifying Ethereum as a security increases, Eric Balchunas, senior ETF analyst at Bloomberg, has significantly reduced the probability of an Ethereum spot ETF being approved in May from 70% at the beginning of the year to 25%. He stated that it is now almost confirmed in Gensler’s mind that ETH is considered a security.
Related Reports:
Opinion: Why the SEC “Should Not” Classify Ethereum as a Security?
Bloomberg Analyst: Ethereum Spot ETF Won’t Be Approved in May! ETH Drops to $3,150
Difficulties for Ethereum Spot ETF in May? SEC’s Attitude is Negative, Anti-Crypto Congressmen Intervene…
Should We Prepare for the Rejection of Ethereum Spot ETF? Three Possible Reasons for SEC’s Rejection.