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On May 23, 2024, the SEC approved listing of eight ETH ETPs. The order approved the applications to list the ARK 21Shares Ethereum ETF, the Fidelity Ethereum Fund, the Grayscale Ethereum Trust, the Bitwise Ethereum ETF, the iShares Ethereum Trust, the Invesco Galaxy Ethereum ETF, the Franklin Ethereum ETF.

The approvals are a stunning turnaround from what had been industry consensus (that the SEC was going to deny the applications to list funds of VanEck and 21Shares) just a few days earlier. By some accounts, the SEC dropped the news on the applying exchanges and the issuers less than a week before approval of the applications, leaving everyone to frantically file necessary amendments to meet the SEC’s deadline; giving exchanges and issuers that little time to file amendments is quite unusual.

Actual listing and trading of these ETPs will not happen for some time, because none of the registration statements are ready to be declared effective. Still, the news represents a big step for crypto in the United States.

LEGAL TOKENS

Here are two thoughts related to the ETH ETP approval that may have gotten lost in the news shuffle about the SEC’s quick turnaround.

1. ETH is not a security. While most practitioners had reached a very high level of confidence that this was so based on prior staff statements, Chairman Gensler had refused to answer any questions about this in the affirmative. But the approval of the ETH ETPs as companies under the Securities Act of 1933 rather than investment companies under the Investment Company Act of 1940 means that ETH is definitively not a security. If ETH were a security in the staff’s view, the ETPs would have had to register as investment companies..

2. The ETPs are not permitted to stake their ETH. The approved ETH ETPs which had previously disclosed in their applications that they intended to stake ETH all removed the relevant language prior to approval. Thus, none of the ETH ETPS that received approval yesterday may stake the ETH they hold. If they had, it might have (a) implied that the SEC reached a certain level of comfort with staking without necessarily answering whether or what kind of staking activity involves a security, or whether staked ETH could be considered a security, and (b) provided a large pool of ETH that could have been staked.

Saying that the ETH ETP approval was a momentous step is in our mind accurate. Throw in passage of the FIT 21 Act in the House (even though the Senate has yet to consider it and it may not ultimately provide a definitive solution to the regulatory questions vexing crypto in the U.S.) and the repeal of the SEC’s SAB 121 guidance (even though it may get vetoed by the White House), and these last two weeks are definitely two weeks to remember.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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Author's Assets

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Anthony Tu-Sekine | Partner

As the head of Seward & Kissel’s Blockchain and Cryptocurrency Group and a frequent commentator on all things crypto, Anthony advises clients on a wide range of evolving topics, including how to structure and issue security and utility tokens, registered and unregistered offerings of security tokens, token custody, transfer and liquidity issues, non-security opinions, and investments in crypto assets by funds and other investors. A recognized leader on physical precious metals funds, Anthony represented APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of OneGold.com, which allows investors to own gold documented on blockchain. He also:

  • Represents ShelterZoom, a leading blockchain-based SaaS contract management platform;

  • Helped form a tokenized hedge fund;

  • Provides advice in connection with ransomware payments made in cryptocurrencies; and

  • Worked with sponsors of bitcoin ETF and OTC products.

“You can work with regulators or you can really try to piss them off… If you really want to do the latter, then you should expect that they will bring every tool they have against you.”
 
Anthony’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector”

“The SEC is a principles based regulator, and it will assert its jurisdiction over any securities offering or transaction, as it has done since the onset of the ICO craze, regardless of the technology used to facilitate such an offering.”

Philip’s thoughts on the recent SEC enforcement action against Kik Interactive, Inc. as published in the Crowdfund Insider article “Former SEC Senior Counsel Comments on Kik Ruling: Kik Could Have Benefited From Traditional Capital Markets Lawyer"

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Philip Moustakis | Partner

A former senior counsel in the SEC’s Division of Enforcement, Philip advises companies and individuals at Seward & Kissel on cryptocurrencies and blockchain technology, SEC enforcement matters, other regulatory investigations, and internal investigations. As a founding member of the SEC’s Cyber Unit, Philip advised the Commission on cryptocurrencies and investigated matters involving initial coin offerings (ICOs), unlawful touting of ICOs, and other violations of the federal securities laws related to cryptocurrencies. Publicly filed enforcement matters Philip spearheaded included the SEC’s first ever Bitcoin-related enforcement action against the operator of Bitcoin Savings & Trust, a Bitcoin-denominated Ponzi scheme, settled proceedings against an operator of a Bitcoin-related social media marketing venture and a popular Bitcoin betting site for the offer and sale of unregistered securities, and settled proceedings against an operator of unregistered cryptocurrency-denominated securities exchanges and broker-dealers.

“The SEC is a principles based regulator, and it will assert its jurisdiction over any securities offering or transaction, as it has done since the onset of the ICO craze, regardless of the technology used to facilitate such an offering.”

Philip’s thoughts on the recent SEC enforcement action against Kik Interactive, Inc. as published in the Crowdfund Insider article “Former SEC Senior Counsel Comments on Kik Ruling: Kik Could Have Benefited From Traditional Capital Markets Lawyer"

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Casey Jennings | Counsel

A member of Seward & Kissel’s Financial Services Regulatory Group and Blockchain and Cryptocurrency Group, Casey advises financial services companies – including banks, broker-dealers, investment funds, service providers, and financial technology companies – on federal and state banking and securities law issues and the structuring of new financial products, including anti-money laundering, deposit issues, token offerings, custody of traditional and crypto assets, transfer and liquidity issues, Volcker Rule issues, and investments in crypto assets by funds and other investors. Before joining the firm, Casey served as counsel to the Consumer Financial Protection Bureau, where he developed and implemented financial regulatory policy, including the first CFPB rulemaking to rely on unfair, deceptive, and abusive acts and practices (UDAAPs) authority. Since then, he has:

  • Represented e-retailer APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of the online marketplace, OneGold.com.

“The whole notion of crypto is that there are no gatekeepers and the BSA requires that there be gatekeepers. Those two notions are very much at odds with one another. But the BSA is the best system that we’ve got right now.”

Casey’s perspective on crypto AML regulations as published in Cointelegraph article “How U.S. authorities are using old AML tools to crack down on crypto”