Ethereum is a top performer in the top 10 most valuable coins. At press time, ETH is up an impressive 30% and steady above $3,700 as bulls slice through immediate resistance levels.

The trigger is the United States Securities and Exchange Commission (SEC) possibly approving the first spot Ethereum exchange-traded funds (ETFs) this week or in the coming days.

However, while the excitement is high and traders expect further gains, even above $4,100 and all-time highs, the potential approval of this derivative product has ignited a legal debate surrounding the classification of ETH.

Jake Chervinsky, a lawyer who often comments on crypto matters, took to X, arguing that should the Commission proceed to greenlight the product, the decision would be a tacit acknowledgment on their part that all unstaked ETH in circulation is commodities, similar to Bitcoin. 

Chervinsky notes that this decision would be a major policy move from the strict regulator. Over the years, the United States SEC has hesitated to classify any asset besides Bitcoin as a commodity.

Any move to approve the spot Ethereum would be moving the Commission’s hand, indirectly making them endorse ETH as a commodity, similar to Bitcoin.

It would only make sense. Like spot Bitcoin ETFs issued by, among others, ProShares and Fidelity, the product will track the price of all unstaked ETH.  

Following the regulator’s reported request to direct interested spot ETH ETF issuers to amend their applications, analysts note an interesting change.

Combining the recent 19b-4 filings submitted to the United States from applicants like Grayscale, issuers continue to classify their shares under the “Commodity-Based Trust Shares” rule. 

Additionally, Fidelity’s application explicitly mentions that its ETH will not be staked. Some see this deliberate removal of staking from the equation as a strategic move to satisfy the regulator’s potential concerns about securities classification.

There are arguments that the United States SEC has resisted classifying ETH as a security because of staking. Being a proof-of-stake network, the promise of yield could likely be interpreted as the network offering a guaranteed profit or income. 

This feature, in turn, might align ETH as a security under the Howey Test criteria. In that case, ETH would be a security and must be registered with the regulator. 

Still, some say the Howey Test is obsolete, considering that Ethereum and digital assets in general are emerging asset classes.

Representative Tom Emmer took to X on May 21 to provide clarity, saying ongoing efforts are being made for legal clarity via the Securities Clarity Act. This legislation aims to establish that a token itself does not automatically constitute a security.

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