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Was the SEC’s Decision to Approve Ethereum ETFs Politically Motivated?

Last Updated June 14, 2024 3:42 PM
Eddie Mitchell
Last Updated June 14, 2024 3:42 PM
Key Takeaways
  • Spot ETH ETFs may still be months away from launching.
  • Donald Trump has become a major advocate for Bitcoin (BTC) and cryptocurrencies.
  • The SEC is yet to approve all S-1 forms required for spot ETH ETFs to begin trading on American stock exchanges.

Throughout 2024, the U.S. Securities and Exchange Commission’s (SEC) interventions in the crypto space have been a mixed bag of enforcement actions and market appeasement.

Considering the dozens of lawsuits and enforcement actions against crypto firms that have brought criticism and ire from industry leaders and politicians, why has the SEC suddenly decided to approve spot Ethereum (ETH) exchange-traded funds (ETFs)?

Are Ethereum ETFs Political?

In a June 5 interview with KITCO , Bloomberg ETF analyst James Seyffart posited his belief that the sudden U-turn on Ethereum ETFs was a political decision. This prompted the analyst to call for a Freedom of Information Access (FOIA) request to determine what happened during the SEC’s decision-making process.

He noted that public requests should search for “emails, calls, anyone that had conversations with Gary Gensler,” the chairman of the SEC. Seyffart said the approval came through delegated authority, which means voting records would be unclear.

The ETF expert noted that there were low expectations for the approval since the SEC had maintained its typical levels of hostility and poor communication during the process. Just two weeks before they approved the 19b-4 forms, the SEC had told issuers they had no interest in the filings.

Seyffart says that many are unhappy with the Biden administration’s handling of crypto and other notable policy areas. He suggests the “leading theory” to be that somebody called Gary Gensler from the Biden administration, which prompted the sudden approval spot ETH ETF approvals by the SEC. It’s a theory that is also backed by Presidential candidate Robert F. Kennedy (RFK) Jr.

Until the FOIA requests are fulfilled, Seyffart reiterates that unlike the spot Bitcoin ETF vote, where you could see the voting breakdown, there’s no way to know how this decision was made.

Grayscale’s View

In a recent report , Grayscale, the asset management firm behind the $19 billion  Grayscale Bitcoin Trust (GBTC) ETF, highlighted the interplay of crypto and politics in the States. As per the report, Grayscale’s research team notes that crypto “remains a bipartisan issue” ahead of the U.S. presidential elections.

Describing the approval of Ethereum ETF filings as “unexpected”, the report highlights the political struggle crypto regulation faces in the U.S. between its various entities, most notably  the SEC and the Biden administration.

This hasn’t deterred the House, which recently passed yet another bill, namely the Financial Innovation and Technology for the 21st Century Act (FIT21 ). This bipartisan piece of legislation would extend existing financial consumer protections to the digital asset space, its intermediaries, and related activities.

Furthermore, it would give federal regulators authority over digital asset spot markets and bridge numerous regulatory gaps that continue to stifle the U.S. crypto sector. The FIT21 bill is one of the few to receive support from the crypto industry, with the likes of Coinbase and Ripple (XRP) voicing their support of the bill.

According to Grayscale, crypto ownership rates are split relatively even between Republicans (18%) and Democrats (19% ). Noting Donald Trump’s new-found advocacy for crypto on the campaign trail, Grayscale posits that 2024’s presidential race may be the “Bitcoin election” the industry has been waiting for.

The Campaign Trail

Vocal and hyperbolic, Donald Trump is the main opposition to the Biden administration in this year’s presidential election. Having previously referred to Bitcoin as a “scam” and a “disaster waiting to happen”, Trump now seems to back these “crazy new” and “additional” forms of currency.

Biden, who caught the ire of crypto after vetoing Congress’ efforts to squash an anti-crypto rule, namely SAB-121, may have alienated crypto voters in this move. This was a notably disappointing moment for crypto as it was the first and only crypto bill to land on his desk.

Evidently, the Biden administration may be having a slow change of heart.

This may be too little too late however. When it comes to crypto advocacy at a political level, no one is quite as vocal as Trump. Most recently, the presidential hopeful held a closed-door meeting on June 11, 2024, with the country’s top Bitcoin miners. Following this, he posted  to Truth Social:

“VOTE FOR TRUMP! Bitcoin mining may be our last line of defense against a CBDC. Biden’s hatred of Bitcoin only helps China, Russia, and the Radical Communist Left. We want all the remaining Bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT!!!”

Reportedly, Trump wants to see all Bitcoin made in America. Speaking with CNBC , BTC Inc. CEO David Bailey, who organized the mining meeting, told reporters that “our industry intends to make Bitcoin and crypto a defining issue for the 2024 election,”.

Ethereum ETF an Election Issue?

Arguably, the FIT21 bill is the most significant and substantive piece of crypto-specific legislation to reach the House of Congress. It saw major participation from Democrats, and a particularly specific announcement from Biden to not veto the FIT21 bill, despite it being officially opposed by the White House.

It’s another sudden change of heart, one that took place behind the scenes, that may indicate that the spot ETH ETF decision was purely political. Maybe it wasn’t about political pressure, but a “pragmatic” means for the SEC to avoid uncomfortable legal disputes, namely whether or not ETH is a security.

This would force Gensler and the SEC to reposition their arguments against Ripple (XRP), Coinbase, Uniswap, and many others with which it is embroiled in legal battles regarding the classification of cryptocurrencies.

Gensler, who is a Democratic Party representative, certainly has something to gain with his sudden changes of heart towards Bitcoin and Ethereum ETFs. Despite Gensler’s warning that it could take some weeks or months before they begin trading, it is expected the spot Ethereum ETFs will launch before the November elections.

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