Last week, Ethereum ETH +2.63% developer Consensys brought the U.S. Securities and Exchange Commission to court, seeking a declaration that ether is not a security. This legal battle will be a prolonged affair, according to investment bank TD Cowen. As a result, the bank reiterated that spot Ethereum exchange-traded funds are unlikely to gain approval before 2025.

"We believe the litigation will take years while our view remains that the SEC is unlikely before 2025 to approve Ethereum ETFs," TD Cowen Washington Research Group, led by Jaret Seiberg, wrote in a note on Monday.

SEC Chairman Gary Gensler is "okay" with the court deciding whether ETH is a security or commodity, according to TD Cowen.

"As we have argued in prior notes, we believe Gensler wants the courts to define how the law applies to crypto prior to Congress enacting crypto market structure legislation," the bank said.

Consensys vs. SEC lawsuit is 'a positive'

Consensys' lawsuit against the SEC came after it received a Wells notice — a formal notification from the regulator that it intends to bring an enforcement action against the company — earlier this month, Consensys revealed in its lawsuit filing. The SEC "seeks to regulate ETH as a security, even though ETH bears none of the attributes of a security — and even though the SEC has previously told the world that ETH is not a security, and not within the SEC's statutory jurisdiction," Consensys said in the filing.

TD Cowen views the litigation as "a positive" as Consensys raises key issues that need to be resolved. SEC officials had previously said Ethereum was not a security, but Gensler has refused to comment on the matter, which has created uncertainty that needs to get resolved, the bank said.

While the legal battle will take "years rather than months" to resolve, even if Consensys is able to get a temporary injunction, there won't be certainty, TD Cowen said.

"And we are dubious that a court will want to block oversight of crypto given prior industry controversies," it added.

Consensys' choice of court for the lawsuit, which is the Northern District of Texas, and which has shown "the least deference to regulators," also "does not guarantee quick results," according to TD Cowen, because "this is also the same court that has dragged out the credit card late fee suit."

Spot Ethereum ETFs unlikely before 2025

TD Cowen reiterated that it does not expect the SEC to approve spot Ethereum ETFs when the next set of deadlines hits on June 11. Instead, it views the process being pushed to after the election as it expects legal and political pressure to grow in the second half of this year no matter who wins in November.

"We argued after the SEC approved Bitcoin BTC +5.80% ETFs that it could take more than a year for an Ethereum ETF. Our view remains that SEC Chair Gensler was forced to act on Bitcoin while he is not under similar pressure for an Ethereum ETF," TD Cowen concluded.