JPMorgan says SEC's Wells notice to Robinhood Crypto shouldn't hinder eventual approval of spot ether ETFs

The United States Securities and Exchange Commission's recent Wells notice to Robinhood Crypto concerning alleged unregistered security offerings is unlikely to obstruct the potential approval of spot ether exchange-traded funds, according to JPMorgan.

"In our opinion, it does not look like the Wells notice should pose an obstacle to an eventual approval by the SEC of spot Ethereum ETH -1.52% ETFs, although perhaps not as soon as this month," JPMorgan analysts, led by Nikolaos Panigirtzoglou, wrote in a report on Wednesday. "The template is likely to be similar to bitcoin: with futures-based Ethereum ETFs already approved, the SEC (if it denies the approval of spot Ethereum ETFs) is likely to face a legal challenge and eventually lose."

Earlier this week, retail brokerage Robinhood said that its crypto unit had received a Wells notice from the SEC — indicating the regulator's expectation to file an enforcement action against the company over alleged securities violations.

Robinhood Crypto offers trading in over a dozen cryptocurrencies, including bitcoin and ether. According to the JPMorgan analysts, the Wells notice appears to be a continued attempt by the SEC to reinforce its position that all cryptocurrencies outside bitcoin and ether should be classified as securities.

However, the SEC hasn't explicitly stated that ether is not a security. When asked if the Wells notice implies that, Panigirtzoglou told The Block in a separate statement:

"No, we don't think it is implied by the Wells notice to Robinhood. Robinhood does not only facilitate trading on Bitcoin and Ethereum but on another 13 tokens also. Eventually, the status of Ethereum is likely to be determined by legislation and as we argued previously (and as it was revealed in Hinman's papers last June) there might be an eventually 'middle' category for Ethereum, neither commodity nor security but something in between."

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Markets unlikely to get disappointed

The potential lack of approval of a spot ether ETFs this month is "unlikely to be a huge disappointment" to markets, according to the JPMorgan analysts. Markets already don't appear to be expecting approval this month, as implied by the significant discount to net asset value of the Grayscale Ethereum Trust, the analysts added.

Notably, earlier this week, Grayscale withdrew its application for its ether futures ETF. When asked why Grayscale would withdraw its application, Panigirtzoglou told The Block that Grayscale may believe its futures-based ether ETF application would not be as helpful as they had hoped in persuading the SEC to approve spot ether ETFs.

"Instead, Grayscale might prefer to focus on its other pending application to convert its existing Ethereum trust into spot Ethereum ETF and prefer to wait for the SEC decision/reasons for rejection by May 23rd (final decision date for VanEck spot Ethereum application) before it decides its next steps," Panigirtzoglou added.