Uniswap Challenges SEC Amid Ethereum Token Security Debate

SEC Ether ETF approval speculation drives Ether up 12% to $3,448, Bitcoin gains 5% to $69,527.

By Athena Xu

5/21, 13:52 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • Uniswap and Consensys are challenging the SEC's classification of ethereum tokens as securities, arguing regulatory overreach and outdated definitions.
  • The SEC's increased scrutiny on decentralized finance players like Uniswap comes amid uncertainty over ether’s classification, impacting the broader crypto ecosystem.
  • Potential reclassification of ether as a security could force exchanges to register with the SEC or delist ether, significantly affecting the market.

Ether ETF Speculation Drives Market Surge

The crypto market experienced a significant rally on Monday, led by Ether (ETH), amid growing speculation that the U.S. Securities and Exchange Commission (SEC) may be easing its stance on approving exchange-traded funds (ETFs) that invest directly in Ether. Ether surged as much as 12% to approximately $3,448 by 3:51 p.m. in New York, while Bitcoin (BTC) also saw gains, climbing 5% to $69,527. This surge was fueled by comments from Bloomberg Intelligence ETF analyst Eric Balchunas, who, along with his colleague James Seyffart, increased the estimated probability of a spot-Ether ETF approval to 75% from 25%.

Chris Newhouse, a decentralized-finance analyst at Cumberland Labs, noted the market's reaction: "Massive spikes in volume and demand for both spot and leveraged positions are apparent in the markets and the outperformance in ETH compared to BTC points to the potential ETH ETF catalyst as a primary driver." This sentiment was echoed across social media, where traders speculated that the SEC might be more inclined to approve an Ether ETF, prompting many to scramble to secure positions.

Regulatory Hurdles and Market Reactions

Despite the optimism, the path to approval remains uncertain. The SEC has requested exchanges to update their 19b-4 filings on an accelerated basis, suggesting a potential move towards approval ahead of a key deadline this Thursday. However, the ETFs will also need their S-1 applications approved before trading can commence, a process that could take an indefinite amount of time.

Some fund companies remain skeptical, expecting a rejection due to less robust private dialogues with the SEC compared to those before the approval of spot-Bitcoin ETFs in January. This cautious outlook was shared by Ravi Doshi, head of markets at FalconX, who stated, "FalconX’s derivatives desk has seen the majority of our counterparties fade the move with the expectation that the SEC will move slower than the markets are anticipating."

Market Sentiment and Future Outlook

The crypto market had been relatively flat early Monday, with Bitcoin trading at $67,156 and Ether at $3,127, following a week of bullish action driven by optimism about a potential U.S. rate cut and a rally in stocks. The upcoming SEC decisions on VanEck's and Ark/21Shares' Ether ETFs, along with Nvidia's earnings report, are expected to inject more volatility into the market.

March Zheng, managing partner of Bizantine Capital, expressed cautious optimism, stating, "There are reasons to believe that the report will contain silver linings for the delay, which should signal an eventual approval of Ethereum in the next year." He highlighted that the removal of staking prepositions by filers reclassifies underlying ETH as commodities supported by the CFTC, potentially paving the way for future approvals.

Polymarket currently assigns a 10% chance of an Ether ETF being approved by May 31, a 13% chance by June 30, and a 28% chance within the year. Coinbase analyst David Han suggested that the market might be "underestimating the timing and odds of a potential approval."

Street Views

  • Marvin Ammori, Uniswap (Bearish on SEC's stance):

    "The SEC’s entire case rests on the false assumption that all tokens are securities. Tokens are in fact, simply a file format for value."

  • Joseph Lubin, Consensys (Bearish on SEC's actions against Ethereum and decentralization):

    "This action is about the almost certainty that we hold that the SEC is trying to slow or kill ethereum, decentralization, disintermediation, and disintermediated technology in the U.S. and probably wouldn’t stop there with its long arm."
    "It might influence other nation states to do similarly draconian things."

  • Christopher Gerold, Digital Assets Attorney (Neutral on potential impact of Ethereum being classified as a security):

    "If the SEC, in fact, does take the position that ethereum is a security, pretty much everyone in this business that is using or providing services on the ethereum blockchain... they’re going to be on notice that they might need to be registered."
    "Whatever protections they thought they had before are no longer going to be there, and we’re going to see a shift in the industry."

  • Laura Brookover (Head of Litigation and Investigations at Consensys) (Bearish on SEC targeting developers):

    "They asked for a list of the names of any Consensys developers who contributed any coding to the merge... Those are very strange requests from a financial regulator."