Galaxy Digital’s Thorn says SEC could label staked ETH as security in ETF plans

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As an experienced financial analyst, I believe that Alex Thorn’s perspective on the SEC possibly classifying staked Ethereum as a security to potentially approve spot Ethereum ETFs is noteworthy. The nuanced distinction he suggests could be a viable solution for the SEC to navigate the complex regulatory landscape surrounding cryptocurrencies and ETFs.

According to Alex Thorn from Galaxy Digital, the Securities and Exchange Commission (SEC) could categorize staked Ethereum as a security in order to establish a basis for approving a spot Ethereum exchange-traded fund (ETF).

According to Alex Thorn, the head of research at Galaxy Digital, there could be a surprising shift in the U.S. Securities and Exchange Commission’s (SEC) stance on approving spot Ethereum exchange-traded funds (ETFs).

If the rumors about a 180-degree shift in SEC’s stance on Ethereum ETFs are accurate, it seems they might attempt to navigate the fine line between “ETH” being considered as non-security and “staked ETH,” or even more tenuously, “staking-as-a-service ETH,” classified as securities.— Alex Thorn (@intangiblecoins) May 21, 2024

On May 21, Thorn proposed a possible distinction between Ethereum and staked Ethereum in a post on X, suggesting that the Securities and Exchange Commission (SEC) might view the latter as a security.

If the rumors about a 180-degree shift in SEC’s stance on Ethereum ETFs are accurate, I would assume they will strive to find a balance between classifying “ETH” as a non-security and considering “staked ETH” or even “staking as a service ETH” as securities.
Alex Thorn

The distinction between these categories might carry substantial consequences for proposed Ethereum Exchange-Traded Funds (ETFs), which the Securities and Exchange Commission (SEC) have yet to endorse.

Thorn proposes that shifting strategy would harmonize with the SEC’s ongoing lawsuits and probes, enabling the commission to endorse Ethereum ETFs while upholding prior arguments and stances. However, this method could potentially include particular limitations for Ethereum spot ETFs, according to Thorn.

“Here, and possibly for other explanations, it is reasonable to assume that the Securities and Exchange Commission (SEC) would disallow Exchange-Traded Funds (ETFs) from staking the Ethereum (ETH) they possess.”
Alex Thorn

The Securities and Exchange Commission (SEC) could differentiate between Ethereum (ETH) and staked ETH to navigate the intricate regulatory terrain. This approach might pave the way for Ethereum Exchange Traded Funds (ETFs), while keeping a stringent regulatory grip on staked assets and other cryptocurrencies. However, there is ambiguity regarding how the SEC would address tokenized versions of Ethereum or Bitcoin in layer-2 applications, such as lending platforms.

During this period, Ethereum experienced a significant increase of more than 17% after reports emerged that the Securities and Exchange Commission (SEC) could potentially approve spot Ethereum Exchange-Traded Funds (ETFs). Previously, it was widely believed that the SEC would not grant approval for such funds.

Revised: JSeyff and I have raised our estimation of Ether ETF acceptance probability to 75% (previously at 25%). Reports circulating today indicate that the SEC may be reconsidering its stance on this contentious matter, leading to a flurry of activity from all involved parties.

— Eric Balchunas (@EricBalchunas) May 20, 2024

Eric Balchunas, a senior analyst at Bloomberg, initially expressed skepticism about the prospects of an Ethereum Exchange-Traded Fund (ETF) approval, stating that the odds were “slim to none.” However, in a recent update on May 20, Balchunas revised his estimate, raising it to 75%. He suggested that the Securities and Exchange Commission (SEC)’s sudden urgency to approve ETF applications could be due to external pressure, as their earlier stance showed a lack of engagement with applicants.

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2024-05-21 11:10