Ether Tumbles 6% as ETH ETF Hopes Dim Amid Regulatory Probe Reports

• Ether dropped to near $3,200 and other cryptos turned lower as the regulatory headwind weighed on the market.
• Ether-based spot ETFs likely won't get approved by the SEC in May, Bloomberg analysts said Tuesday.

Ethereum's ether (ETH) tumbled as much as 6% Wednesday amid concern much-hoped-for ETH exchange-traded funds face a roadblock to U.S. approval.

CoinDesk reported earlier in the day that the Ethereum Foundation, the non-profit organization that helps develop the blockchain behind the second-largest cryptocurrency, faces a confidential inquiry from an unnamed government. Not long after, Fortune said the U.S. Securities and Exchange Commission is waging a campaign to classify the Ethereum blockchain's native token as a security, beginning a probe after Ethereum moved to a proof-of-stake network in 2022.

In the aftermath, ETH dropped to $3,200. Bitcoin (BTC), the largest cryptocurrency, dropped to around $62,000 after bouncing to near $64,000 earlier. The broad-market CoinDesk 20 Index (CD20) fell 3%.

"I do think this relates to the ETF … The SEC has been in an untenable position for some time with its position on ETH,” said Scott Johnson, general partner at Van Buran Capital in a post on X. “This is in my opinion either an attempt to maintain its ambiguity for just a bit longer or the SEC is going nuclear option.”

Designating ETH as a security could complicate efforts to create ether ETFs in the U.S. The SEC has a May deadline to decide on approval. An analyst at Bloomberg Intelligence on Tuesday said he doesn't expect such a fund to get approved by May, given the regulator's lack of engagement with potential issuers – a contrast to the active conversations around spot bitcoin ETFs before they got the green light in January.

Earlier Wednesday, the SEC delayed its decision on VanEck’s proposed ether ETF.

UPDATE (March 20, 2024, 17:33 UTC): Updates with a quote from Scott Johnson, general partner at Van Buran Capital.