Prometheum Capital Introduces SEC-Supervised Ether Custody Services, Treating Ether as a Security
Prometheum Capital, a digital asset firm known for its controversial stance on cryptocurrencies, has soft-launched Ether custody services under the supervision of the US Securities and Exchange Commission (SEC).
The move has sparked controversy in the crypto community as it treats ETH, the native cryptocurrency of the Ethereum blockchain, as a security.
Originally slated for a first-quarter launch in 2024, Prometheum decided to soft-launch its ether custody services earlier than anticipated.
According to a report from Fortune, the firm initiated the service with a select group of undisclosed companies on Friday.
Prometheum plans to fully launch its custody services in June, with trading services set to commence within the next quarter, as confirmed by co-CEO Aaron Kaplan.
“It eliminates a lot of the arguments that things can’t be done under existing laws,” Kaplan told Fortune in an interview.
“It marks the first time that…an investment contract digital asset security is being custodied and treated under the securities laws.”
Prometheum Sparks Controversy in Crypto
By treating ether as a security, Prometheum aims to provide institutional clients, including asset management firms, hedge funds, banks, and registered investment advisors, with SEC-compliant custodial services.
The firm also has plans to expand its offerings to retail clients in 2024.
Prometheum’s approach to cryptocurrencies has been met with controversy within the blockchain industry.
This is why we have to keep fighting. Gensler probably told Prometheum to launch their ETH custody as a security service week as he builds his list of excuses for not approving the ETH spot etf. https://t.co/n1IdNUDQfi
— Tony Edward (Thinking Crypto Podcast) (@ThinkingCrypto1) May 20, 2024
While the majority of the industry argues against treating cryptocurrencies as securities, Prometheum takes a contrarian view.
The firm suggests that a clear legal path for crypto in the US exists by operating custodial and trading services under separate entities with approval from both the SEC and the Financial Industry Regulatory Authority (FINRA).
This move by Prometheum coincides with the SEC’s ongoing efforts to regulate the crypto space.
The agency has consistently warned crypto exchanges about the need for registration and has taken actions against major platforms like Coinbase, Binance, and Kraken, for multiple alleged reasons like operating as unregistered exchanges, brokers, dealers, and clearinghouses.
Meanwhile, crypto firms have argued that registering with the SEC is a complex process.
Ether Classification Remains a Subject of Debate
The classification of Ether has been a subject of debate, with SEC Chair Gary Gensler hinting at it being considered a security.
However, Commodity Futures Trading Commission Chair Rostin Behnam has suggested viewing Ether as a commodity.
Prometheum’s involvement with ether custody could force the SEC to make a definitive decision on the matter.
In March, prominent Republicans, including House Financial Services Committee Chair Patrick McHenry and House Agriculture Committee Glenn Thompson, stated that the SEC must determine whether Ether is a security before Prometheum can offer custody services.
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The SEC faces final deadlines to make decisions on VanEck and ARK‘s spot Ethereum ETF applications on May 23 and May 24, respectively.
In a recent note, Matteo Greco, a research analyst at digital asset investment firm Fineqia International, added that concerns over the liquidity of ETH’s spot and futures markets, along with its previous classification as a security by the SEC, contribute to skepticism about swift approval.
“If rejected, issuers would need to resubmit filings, potentially leading to approval in Q4 2024 or Q1 2025 at best,” the analyst wrote.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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