After Blackrock Comes Grayscale, Another Delayed Decision by the SEC

Key Takeaways

• The SEC has delayed its decision on an application by Grayscale Investments to convert its ETHE into an ETF.
• The regulator asked for public input on whether a spot Ethereum ETF would bear similarities to its BTC counterpart.
• Some experts predict that spot Ethereum-ETFs could be approved by the summer of 2024.

The U.S. Securities and Exchange Commission (SEC) has deferred its decision on an application by Grayscale Investments to transform its Ethereum trust product (ETHE) into an exchange-traded fund (ETF).

This move comes just a day after the SEC delayed a decision on BlackRock’s application for a comparable ETF.

Postponed Decision on Grayscale’s Ethereum Trust ETF Conversion

Historically, the SEC has been hesitant to approve spot crypto ETF products, having only recently allowed the launch of a series of spot Bitcoin ETFs in the U.S. earlier in January.

As the SEC recently approved spot Bitcoin ETF applications, issuers, and exchanges responded by filing updated documents to address the regulator’s queries. The current status of the spot Ethereum ETF applications in this regard remains uncertain.

This week’s developments include the SEC inviting public input on several questions related to these applications. A key query for consideration is whether a spot Ethereum ETF would bear similarities to its Bitcoin counterpart, indicating a new phase of scrutiny and public engagement in the process of evaluating Ethereum-based ETFs.

The filing asked :

“Do commenters agree that arguments to support the listing of Bitcoin ETPs apply equally to the Shares? Are there particular features related to ETH and its ecosystem, including its proof of stake consensus mechanism and concentration of control or influence by a few individuals or entities, that raise unique concerns about ETH’s susceptibility to fraud and manipulation?”

Key Queries on Ethereum ETFs Mirror Bitcoin Concerns

In its review of the spot Ethereum ETF applications, the SEC is posing questions similar to those asked during the evaluation of Bitcoin ETFs. These inquiries delve into issues of market manipulation, the correlation between spot and futures markets, and whether the CME futures market for Ethereum is sufficiently large.

Amid regulatory deliberations, optimists are predicting that spot Ethereum-ETFs could be adopted by the summer of 2024. This optimistic outlook hinges on a forthcoming decision by the CFTC and the SEC, which is expected to clarify whether Ethereum, the second-largest cryptocurrency by capitalization, does not meet the criteria of a security.

Experts suggest that the ongoing trial involving Binance could provide much-needed clarity regarding Ethereum’s status in terms of securities law.

Binance’s Challenges Signal a Path to Mainstream Crypto Adoption

This anticipation stems from discussions in previous meetings, particularly the reference to DAO tokens being considered securities. The outcome of the Binance trial is seen as potentially pivotal in establishing a clearer regulatory framework for Ethereum and similar cryptocurrencies.

Binance’s regulatory challenges are indicative of a broader trend affecting the crypto industry, with global regulators increasingly demanding transparency from crypto exchanges. This heightened scrutiny isn’t limited to regulatory bodies; major banks have also limited Binance’s access, reflecting a broader reevaluation of their stance on crypto.

The primary concerns cited are risks related to money laundering. However, this intensified regulatory focus on Binance and other crypto firms doesn’t signal an end for the industry. Instead, it suggests the onset of a more regulated and potentially mainstream future for crypto assets and exchanges.