Crypto lawyer James Murphy, better known as MetaLawMan, believes the U.S. Securities and Exchange Commission (SEC) has landed itself in trouble by approving a spot exchange-traded fund (ETF) on the Ethereum network.
In the X post, Murphy said the SEC is facing “serious problems” in its lawsuits against some crypto companies, as its approval of an Ethereum ETF puts an end to the debate that Ether (ETH) is a commodity.
The SEC faces serious problems
On May 23, the SEC formally approved the launch of eight Ethereum ETFs from asset managers including Fidelity, BlackRock, Ark Invest/21Shares, Franklin Templeton, VanEck, and Invesco/Galaxy Digital.
A week ago, crypto community members and market experts estimated the chances of approval at 25% due to the SEC's anti-crypto stance. However, this week the market witnessed a surprising development, with analysts raising the chances of approval to 75%.
While the SEC has long maintained an anti-crypto stance, the agency has launched a legal battle against several U.S. digital asset entities for offering unregistered securities such as ETH, Solana (SOL), Cardano (ADA), Ripple (XRP), Polygon (MATIC), and a host of other crypto tokens.
In a tweet, Murphy noted that securities regulators have repeatedly argued during hearings in their lawsuit against Coinbase, the largest cryptocurrency exchange in the U.S., that crypto tokens operating within the ecosystem are classified as securities, with assets such as ETH, SOL, ADA, and XRP falling into this category.
SEC faces difficulties in cryptocurrency lawsuits
Additionally, the crypto lawyer revealed that U.S. District Judge Katherine Polk Failla, who is overseeing the SEC v. Coinbase case, applied the SEC's ecosystem theory in her ruling, stating that customers who purchase tokens on Coinbase are not simply acquiring a worthless asset, but rather are purchasing a digital ecosystem whose growth is tied to the value of the tokens.
Murphy believes it will be difficult for the SEC to explain to a U.S. court that ETH is a commodity while similar ecosystem tokens like SOL and ADA are not.
Coinbase plans to soon file a response to the petition to grant interlocutory appeal in the case, so it wouldn't be surprising if the exchange files a motion for rehearing or to dismiss the SEC's case, assuming the SEC recognizes ETH as a commodity, Murphy said. To make matters worse, other crypto companies with similar pending cases with securities regulators could take the same approach.
