Ethereum Classified as Commodity: Impact of SEC’s Recent ETF Approvals

• SEC approves eight Ethereum ETF applications, establishing Ethereum’s classification as a commodity in financial markets.
• Paul Grewal of Coinbase confirms SEC’s decision aligns with previous regulatory bodies’ recognition of Ethereum’s commodity status.

The SEC approved eight applications for spot Ethereum exchange-traded funds (ETFs), enabling Ethereum trading on major financial markets. Paul Grewal, Chief Legal Officer at Coinbase, confirmed that this approval establishes Ethereum’s status as a commodity, not a security.

This classification aligns with the positions of various regulatory bodies and court decisions that have historically recognized Ethereum’s nature as a commodity.

According to @secgov , an "ecosystem" without any contract or undertaking can qualify token transactions as securities. But that same SEC has now effectively said that ETH sales can't be securities because ETH ETFs may be registered by funds with an S-1. So ETH must not have an…

— paulgrewal.eth (@iampaulgrewal) May 24, 2024

This SEC approval differentiates Ethereum from securities, which are subject to more stringent regulatory requirements. This distinction is crucial for facilitating Ethereum’s integration into regulated financial markets and providing clear pathways for investors.

This week, this day, has been a rollercoaster unlike any other I’ve seen. ETH is effectively deemed a Commodity as we’ve always known it to be. I’m proud to be on team @Coinbase , the trusted partner and custodian for many of the issuers who had 19b-4’s approved tonight. pic.twitter.com/nz1HHFbBSQ

— paulgrewal.eth (@iampaulgrewal) May 23, 2024

Among the approved ETFs are the Grayscale Ethereum Trust and the Bitwise Ethereum ETF, alongside offerings from other financial firms such as ARK/21Shares, Invesco Galaxy, and Fidelity. These approvals prepare the funds for trading, pending the SEC’s approval of their S-1 documents , a process expected to take several weeks.

This decision is expected to boost institutional interest in Ethereum, though trading is on hold until the regulatory procedures are finalized. This step is necessary to ensure all investments comply with regulatory standards before they become available to the public.

Additionally, in response to regulatory guidelines, several Ethereum ETF issuers have recently revised their applications to exclude references to staking customer ETH . This revision is relevant following Ethereum’s transition to a proof-of-stake model in September 2022, which permits ETH holders to earn staking rewards. 

The SEC has scrutinized such staking practices when conducted by financial intermediaries, treating them as potential unregistered securities offerings. By removing these references, ETF issuers aim to facilitate a smoother regulatory approval process.

The SEC’s approval of the Ethereum ETFs is a step in acknowledging Ethereum as a commodity and integrating it more fully into mainstream financial systems. This approval is likely to enhance Ethereum’s visibility and acceptability among traditional investors, marking a key development in its broader market adoption.

Ethereum (ETH) is currently at $3,835.75 USD, up 2.54% recently. The potential approval of an Ethereum ETF could trigger a 60% rally, further boosting the price.