Alex Thorn, the Head of Research at Galaxy Research, raised concerns regarding the Securities and Exchange Commission (SEC) potentially classifying staked Ether as a security. Thorn’s speculation follows growing expectations that the SEC may soon approve Ethereum exchange-traded funds (ETFs).

“If the speculation about a 180 from SEC on the Ethereum ETFs is true, I would guess they try to thread a needle between “ETH” NOT being a security and “staked ETH” (or even more flimsily, “staking as a service ETH”) as BEING a security.”

Thorn suggested that the strategic pivot to approve an Ethereum ETF could be “somewhat congruent” with previous court cases. 

“[...] as well as with reports about their various investigations, and perhaps allow SEC to approve ethereum ETFs while maintaining their previously stated/arguing opinions.”

Related: ‘Winter is over’ — Bullishness returns in wake of Ether ETF anticipation

In response to Thorn’s X post, a community member raised a further concern, considering whether staking Ether (ETH) within an ETF would pose liquidity hurdles, making it difficult to comply with regulatory compliance requirements.

Thorn was “not sure” but addressed this community concern by highlighting that lending ETF collateral typically has limits, which could be a comparable point of reference. However, he also added that European exchange-traded products (ETPs) offer staking services.

Historically, the SEC has sought to classify Ether as a security, a pattern that continues, as evidenced in a recent report by Fox Business producer Eleanor Terret.

Terret, citing court documents filed by Consensys on April 29, suggested that the SEC and SEC Chair Gary Gensler had believed “for at least a year” that Ether was an unregistered security.

According to Bloomberg senior analyst Eric Balchunas on May 20, despite the ongoing shift between approval and rejection, the approval odds for an Ethereum ETF were raised from 25% to 75%.

This steep change in stance occurred after Balchunas heard “chatter [...] that [the] SEC could be doing a 180” on the matter as it becomes an “increasingly political issue.”

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