House GOP: SEC must first decide if ETH is a security for Prometheum to custody it

Republicans led by House Financial Services Committee Chair Patrick McHenry and House Agriculture Committee Glenn "GT" Thompson asked SEC Chair Gary Gensler to further clarify the agency's stance on ether in a letter sent on Tuesday.

This comes as digital asset firm Prometheum, which has become the crypto industry's punching bag, said it plans to offer ether custodial services soon. The firm received its special purpose broker-dealer license from the SEC last year, which the lawmakers said would limit Prometheum's activities to just "digital asset securities."

"In order for Prometheum Capital to make its announcement that it will custody ETH -1.60% and remain in compliance with the SEC’s SPBD regime, Prometheum Capital should have determined that ETH is a digital asset security and that the offer and sale of ETH is either registered as a security or qualifies for an exemption," the lawmakers said.

CFTC Chair Rostin Behnam was asked about Prometheum during a congressional hearing earlier this month. Behnam said if the SEC were to constitute ether as a security, it would put the CFTC's registrants who list ether as a futures contract into noncompliance with SEC rules, calling the situation "critical."

Lawmakers on Tuesday said classifying ether as a security could have broad implications.

"The consequences of exchanges no longer offering ETH derivatives could have significant implications for existing ETH market participants. Not only would market participants lose access to an essential risk management tool, but such an action could also imperil the existing approved ETFs and result in significant price dislocation across the ETH market," the House Republicans said in their letter.