Ramazan Eles 
A group of Republican lawmakers, including key figures from the House Financial Services Committee and House Committee on Agriculture, have formally requested SEC Chair Gary Gensler to provide clear guidance on the regulatory stance regarding the custody of non-security digital assets by Special Purpose Broker-Dealers (SPBD).
In a letter dated March 26, signed by 48 members of Congress, including chairs Patrick McHenry and Glenn Thompson, the lawmakers called for clarity on Ethereum’s (ETH) status and urged the SEC to establish clear definitions for terms related to crypto, digital assets, securities, and investment contracts.
The letter underscores the SEC’s failure to propose a rule or offer comprehensive guidance on asset classification, leaving terms like “digital asset securities” undefined. Despite public records from both the SEC and the CFTC recognizing ETH as a non-security digital asset, concerns linger over the lack of transparency in the SEC’s SPBD regime and the potential regulatory consequences of allowing custody services for such assets.
Key questions posed in the letter include, “Is ETH a digital asset security?” depending on which, further queries follow.
This initiative follows Prometheum Inc.’s announcement of its subsidiary, Prometheum Ember Capital, a FINRA-approved SPBD, planning to offer custody services for Ethereum to institutional clients. Lawmakers expressed alarm over this development, warning of potential “irreparable consequences” for digital asset markets if conducted under the current regulatory framework, which doesn’t explicitly permit SPBD custody of non-security digital assets.
Highlighting the discrepancy between the SEC’s enforcement actions and the historical recognition of ETH as a non-security digital asset, the lawmakers criticized the lack of comprehensive guidance or rules from the SEC on asset classification. They argued that this ambiguity has exacerbated uncertainty within the digital asset ecosystem, hindering regulated entities’ ability to comply with SEC regulations.
Furthermore, the letter outlines broader implications of potentially classifying ETH as a digital asset security, including its impact on CFTC-registered commodity derivative exchanges and the availability of ETH Futures for trading. Such a decision could disrupt market participants’ access to crucial risk management tools and cause significant price disruptions across the ETH market.
In conclusion, the letter warns of a “chilling effect” on US digital asset markets if regulatory uncertainty persists. It stresses the importance of clear and consistent regulatory guidance to foster continued growth and innovation within the digital asset space. Lawmakers have requested a response from the SEC by April 9.