SEC Impeding Innovation and Holding Back Ethereum’s Potential in Banking: Joseph Lubin
Joseph Lubin, co-founder of Ethereum, strongly criticized the Securities and Exchange Commission (SEC) on May 9, accusing the regulatory body of intentionally hindering innovation and obstructing Ethereum’s transformative capabilities in the banking sector.
During his speech at FT Live’s Crypto and Digital Assets summit in London, Lubin expressed his dissatisfaction with the SEC’s approach, claiming that instead of promoting open dialogue and providing clear regulatory guidelines, the SEC has chosen to enforce regulations strategically, causing uncertainty within the cryptocurrency industry.
“It seems that the SEC doesn’t want to witness a wave of innovation that could truly revolutionize the industry,” he stated.
Lubin’s comments were made in response to Consensys’s decision to sue the SEC after receiving a Wells notice from the regulator. Lubin argued that the SEC’s actions, such as reclassifying Ether as a security without transparent communication, were intended to instill fear and doubt, potentially driving cryptocurrency companies to operate offshore.
“The SEC seems to have classified Ether as a security without informing anyone about it,” Lubin remarked. “Instead of engaging in open dialogue and establishing clear rules, they are resorting to a series of enforcement actions.”
At the core of Lubin’s criticism is his suspicion regarding the SEC’s motives, particularly in relation to its recent enforcement actions against Ethereum. Lubin suggested that the SEC’s heightened scrutiny is driven by the pending decision to approve Ether spot exchange-traded funds (ETFs), as the SEC fears the potential influx of capital into the Ethereum ecosystem.
“We believe that there is a flurry of activity aimed at justifying their actions in case they deny the Ether spot ETFs,” explained the Ethereum co-founder.
According to Lubin, the SEC’s reluctance to embrace Ethereum’s advancements in scalability and usability stems from a desire to maintain the status quo, as they fear the transformative impact that decentralized finance (DeFi) could have on the banking industry.
“I think they are concerned that our ecosystem, which is rapidly improving in terms of scalability and usability, will attract significant attention and capital,” he added.
Lubin further argued that the SEC’s resistance to innovation reflects a broader reluctance to adapt to emerging technologies, potentially impeding the growth of the cryptocurrency sector.
Additionally, Lubin cautioned against the SEC’s attempts to classify platforms like Coinbase and MetaMask’s wallets as broker-dealers, warning that such actions could set a dangerous precedent and stifle innovation across the technology sector.
“We are at odds over whether MetaMask should be registered as a broker-dealer,” he stated. “If every MetaMask user has to register their wallet as a broker-dealer, it would have a chilling effect.”
It is highly likely that the SEC will reject spot Ethereum ETFs. The SEC recently announced a delay in its decision on the proposed Invesco Galaxy spot Ethereum ETF, with the new deadline set for July 5, 2024. The SEC stated that additional time is needed to thoroughly review the proposed rule change and associated issues.
Similarly, Franklin Templeton’s application for a spot Ethereum ETF also faces an extended delay, with the decision deadline pushed to June 11, 2024.
Several other issuers, including BlackRock, 21Shares with Ark, Fidelity, Grayscale, VanEck, Hashdex, and Franklin Templeton, have submitted applications for Ethereum ETFs, adding to the anticipation in the market.
Initially, market analysts speculated that the SEC would reach a final decision on spot Ethereum ETF applications in May, aligning with the deadlines for various asset managers’ submissions.
However, the recent delays announced by the SEC have dampened these expectations. Bloomberg Intelligence analyst James Seyffart expressed skepticism, suggesting that the current round of Ether ETF applications may face rejection, which would significantly impact Ethereum investment options in the US.