The question of how Ethereum will be regulated in the United States is a major one. Clear regulations are expected to unlock billions of dollars in investment for ETH and staked Ethereum products in the coming years. Here are three key developments that will shape Ethereum's regulatory landscape:
The SEC Lawsuit: Classifying Ethereum as a Commodity
The Rise of Asian Ethereum ETFs: A Glimpse into the Future?
Staking Regulation: The UK Leads the Way
Taking these Ethereum industry updates into consideration, I believe that once we have regulatory clarity we will see billions of dollars poured into Ethereum over the next two years as most global investors first get access to owning some ETH and betting on Ethereum as the Internet’s native bond with Ethereum staking. Now let’s dive into each development to add more context.
Recently the SEC has been sued by Ethereum’s development company Consenys to to classify Ethereum as a commodity asset. Here is the summary argument:
Ethereum is a global computing platform, not an investment scheme. Ether is not a security.* It is a commodity, as repeatedly confirmed by the Commodity Futures & Trading Commission (CFTC)*
***The SEC has no authority—***nor should it—to regulate global, peer-to-peer computer networks. The SEC’s aggressive overreach into commodities, software, and these novel technology platforms is unlawful.
The SEC is currently reframing its authority,* by redefining legal standards and even everyday language, in order to claim oversight of the Ethereum computer programming ecosystem.*
This lawsuit comes as the SEC is aggressively pushing to pursue enforcement in the crypto sector and continues to hold the belief that Ethereum is a security investment product under it’s regulatory control. A successful lawsuit could pave the way for wider acceptance of Ethereum as a legitimate investment, just like Bitcoin.
While the US investors are held away from being able to invest in Ethereum via an exchange traded funds (ETF), Asia investors are now able to buy Ethereum ETFs via the Hong Kong markets. Launched on Tuesday April 30th, there are now three Ethereum ETFs available to investors. This is possible because Hong Kong has already provided regulatory clarity on Ethereum as a commodity already.
“Hong Kong has already had a clear definition of Ethereum… It is not a security, but the first non-securities virtual asset to be included in Hong Kong supervision together with Bitcoin, and it is one of the two targets that can be provided to retail investors.”
- Wayne Huang, Head of ETF at OSL.
In the United States there are nine current Ethereum ETF applications awaiting approval by the SEC. The SEC must decide on VanEck's and ARK's filings, which are first in line, by May 23 and May 24 respectively. The current assumption is that the SEC will not approve any of the Ethereum ETFs until there is regulatory clarity on Ethereum the asset or at least until the SEC has to approve the applications based on court order.
It took more than ten years to get a Bitcoin ETF approved as the SEC stonewalled and delayed every application until they were forced to approve one. The SEC lost a federal court case to Grayscale Investments to grant approval of their Bitcion ETF product. History has shown us that the SEC prefers to delay crypto product approvals and thus it is expected for the SEC to delay the Ethereum ETF as long as possible as well.
The United States has followed the UK and European Union with it’s crypto regulation strategy thus far, albeit implementing regulation at a much slower pace. The European Union was the world’s first major jurisdiction with comprehensive crypto laws through their Markets in Crypto Assets regulation, MiCA. MiCA was passed in 2023 and came into effect in 2024 enabling businesses and investors to have certainty on how crypto will be regulated.
Now the UK is working on introducing staking regulation to further enables enable economic growth with a clear regulatory framework for crypto assets. The U.K.’s economic secretary to the Treasury, Bim Afolami, revealed the government’s ongoing drive to lay the groundwork for revamping the country’s payments landscape while speaking at the Innovate Finance Global Summit (IFGS) 2024.
“Speaking of true change, I know that the cornerstone of our position as a world leader in fintech is the delivery of our regulatory regime for crypto assets and stablecoins.”
Bim Afolami - U.K.’s Economic Secretary to the Treasury
Clarity on how Ethereum staking rewards will be treated for tax purposes is very important for United States investors. The staking rewards from Ethereum, akin to a dividend, are a key component to Ethereum’s investment appeal and the total picture of the Ethereum ownership opportunity.
Staking is a critical part to the Ethereum investment analysis and thus far the current Ethereum ETF products awaiting to be approved do not include staking rewards. The thinking is that the USA will continue to follow the UK’s crypto regulation when their laws work effectively, just as the US has started to create regulation on stablecoins comparable to the MiCA laws. Regulatory clarity in Europe on crypto staking rewards will be a positive indicator that the USA can follow to provide clarity on staking rewards and Ethereum investment products for USA investors.
Over $10 billion dollars within two months was put into Bitcoin once the Bitcoin ETF was approved in 2024. That’s a lot of money that quickly moved into Bitcoin and there may be even more interest for Ethereum from global investors than Bitcoin.
“The world of investors who are looking for cash producing assets is massive and ETH obviously generates fees that goes to the token holders… "Even if you don't have an ETF that can offer staking as a part of it, it's still a cash producing asset, so I think ETH could make more sense as an asset to more people than Bitcoin does.”
Pranav Kanade, VanEck Portfolio Manager
The thinking is that due to Ethereum’s native yield (aka staking rewards) combined with it’s business model and expected growth ahead, Ethereum is a more attractive investment for investors than Bitcoin. Bitcoin doesn’t produce positive cash flows or staking rewards for holders of the asset. Would you rather own a cash producing asset with a real business model or digital gold that just protects your purchasing power and hedges against inflation? My bet is that most investors will prefer staked ETH over Bitcoin for the mentioned reasons above.
We are not yet to regulatory clarity on Ethereum in the United States but we are making progress on multiple fronts with active lawsuits to define ETH as a commodity and approval of Ethereum ETF products for USA investors. As the rest of the world leads the way with crypto regulation and adoption, the USA again has the chance to copy what is working in other regions to enable financial innovation and investment opportunities locally for USA investors and businesses.
My bet is that we see the USA classify Ethereum as a commodity in 2025 and the Ethereum ETFs are approved in the same year. Staking regulation will likely come afterwards in 2026 and this will usher in access to staked Ethereum products for USA investors. We’ve got a lot of time until we get to Q2 2026. Taking into consideration the macro investment landscape, we have an uphill battle with global financial market uncertainty, higher borrowing costs, and fears of a global financial meltdown of 20-30% before we see a reversal in investor market sentiment to be risk-on investors again.
On the macro environment, my bet is that the money printing by the USA and other governments will lead to real assets appreciating and Ethereum being included in this category as a high beta tech stock for risk-on investors. Therefore I see this time when Ethereum is under $3,000 as a great opportunity to dollar cost average into a starting position of Ethereum and awaiting the global adoption of Ethereum with investors ahead in the next 2-3 years. We don’t know when Ethereum’s regulatory status will be confirmed but it is clear that the next generation of financial markets will be lead by tokens with Ethereum as a core infrastructure layer for the future of finance ahead.
