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Ethereum Spot ETF Approval Timing, Details in Full: ETH Price Jumps as SEC Decision Looms

Last Updated May 23, 2024 11:00 AM
Teuta Franjkovic
Last Updated May 23, 2024 11:00 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • The SEC has reportedly started talks with potential issuers about S-1 registration statements for Ethereum ETFs.
  • The SEC’s decision on VanEck’s spot Ethereum ETF is crucial for the market.
  • Ethereum’s staking model and potential security classification raise regulatory concerns.
  • Industry insiders are optimistic about Ethereum ETFs, citing similarities to Bitcoin ETFs.
  • SEC Chair Gensler remains cautious about crypto due to fraud and manipulation concerns.

The US Securities and Exchange Commission (SEC) has reportedly initiated discussions  with potential issuers of Ethereum ETFs regarding S-1 registration statements.

Meanwhile, Bloomberg analyst Eric Balchunas predicts  the ETH ETF decision will be announced at 4pm EST on May 23.

SEC Engages with Ethereum ETF Issuers on S-1 Forms Amid Approval Anticipation

A senior official from one issuer said  that the SEC’s Division of Investment Management seemed somewhat surprised by this new direction.

The source expressed a cautious optimism. They said that, while they didn’t anticipate the process towards Ethereum ETF approvals being halted, there was still a level of caution.

For Ethereum ETFs to be approved, the SEC must first approve the 19b-4 forms, followed by the the S-1 registration statements. Trading can only commence after these steps are completed. Typically, these forms are revised and refiled before the final versions are submitted for SEC approval.

According to recent updates, BlackRock has filed an updated 19b-4 form  for its proposed Ethereum ETF. Meanwhile, Grayscale and Bitwise have also submitted their amended 9b-4 forms to the SEC. Notably, Fidelity is the only firm that has submitted an amended S-1 form.

May 23 also marks the SEC’s deadline for a decision on VanEck’s Ethereum ETF application. With the deadline for approving or denying VanEck’s 19b-4 form due, there is speculation that the SEC might approve multiple issuers simultaneously, as it previously did with Bitcoin ETFs. This has fueled optimism that a decision, potentially favorable, could be announced today.

Meanwhile, Eric Balchunas noted that past decisions for Bitcoin ETFs were announced at similar times. He mentioned a previous decision released at 3:45 pm, with others following shortly after 4:00 pm EST. Balchunas also posted  a screenshot celebrating the approval of a Bitcoin ETF back in January 2024.

SEC Scrutinizing Ethereum ETFs Despite Regulatory Concerns 

The US Securities and Exchange Commission’s (SEC) approval of spot Bitcoin exchange-traded funds (ETFs) in January 2024 ignited a significant rally in Bitcoin. Now, interest in a spot Ethereum ETF has helped the prices of these two major cryptocurrencies spike.

The SEC has been more cautious about approving Ethereum-related funds, particularly after the early 2024 surge in Bitcoin prices. Historically, the SEC had rejected 20 spot Bitcoin ETF proposals from 2018 to 2023. Now, the market is waiting to see whether or not the SEC will approve VanEck’s ETH ETF application on May 23.

The regulator’s reluctance is fueled by a series of concerns. These include:

  • Crypto’s use in fraud.
  • The potential for digital assets to create speculative bubbles.
  • The risk of less experienced investors being misled the funds’ safety following an SEC endorsement.

It’s worth noting that the SEC’s eventual approval of spot Bitcoin ETFs came only after a US federal appeals court ruling in August 2023 .

Now, the SEC is looking at the differences between Bitcoin and Ethereum. Analysts are now skeptical  about  about the short- to medium-term likelihood of the SEC approving spot Ethereum ETFs.

 

Ethereum Leads Crypto Rally with Surge Amid ETF Speculation

Ethereum experienced its largest surge in 18 months , sparking a broader rally in digital assets, as traders speculated that the SEC might approve ETH ETFs. The price of Ethereum soared by 14% to approximately $3,490 on May 20. At the same time, Bitcoin also saw significant gains, increasing by 5% to reach $69,442.

The optimism was partly triggered by comments from Bloomberg Intelligence ETF analyst Eric Balchunas . Along with his colleague James Seyffart , he raised the likelihood of a spot Ethereum ETF approval from 25% to 75%. This positive shift in sentiment was further bolstered when the SEC reportedly asked one issuer of a potential spot-Ethereum ETF to update its 19b-4 filing on Monday, May 20. The 19b-4 form is essential for informing the SEC about a rule change that would let the fund trade on exchanges.

Chris Newhouse, a decentralized finance analyst at Cumberland Labs, noted  a flurry of activity on social media. According to Newhouse , the markets have seen “massive spikes in volume and demand for both spot and leveraged positions”. Meanwhile, Ethereum’s performance, in particular, suggests that anticipation of an ETH ETF could be a key factor driving this rally.

Critical SEC Decision on VanEck’s Spot Ether ETF Looms with Broader Market Implications

The SEC is set to make a crucial decision on VanEck’s spot Ether ETF by May 23. VanEck’s application is the first among several pending spot Ethereum ETF proposals, including those from prominent players such as:

The SEC has repeatedly delayed VanEck’s application.

In an April interview, VanEck CEO Jan van Eck voiced his doubts about the SEC’s readiness to approve their ETF application in May. His skepticism seemed warranted when Grayscale decided to withdraw its application for an Ethereum futures ETF earlier in March. This move was compounded by the resignation of Grayscale’s CEO, Michael Sonnenshein, announced on May 20.

Skepticism On Approvals for Ethereum ETFs Due to Staking Concerns

Industry observers are expressing doubts that approvals for Ethereum ETFs will be granted as planned in May. A key issue is that Ethereum involves staking—a process where cryptocurrency holders lock their funds as collateral to support blockchain operations in exchange for rewards. This aspect of Ethereum makes it different from Bitcoin and raises specific regulatory concerns.

In March, Fidelity and Grayscale both amended their ETF proposals to include options for staking some of the assets held by the funds. These amendments come in the wake of the SEC’s crackdown last year on staking practices. Notably, the SEC fined the cryptocurrency exchange Kraken $30 million and ordered it to cease its staking services . The SEC has also pursued litigation against Coinbase for similar reasons, with the case still ongoing.

The SEC says  staking-as-a-service poses considerable risks for investors, mainly because they give up control over their tokens to a third party, often with minimal protection. This regulatory concern is particularly relevant to Ethereum ETFs. This is because investors would own shares in a fund rather than holding the tokens directly, further complicating the custody and control aspects of the investment.

Now, Fidelity has filed an amended S-1 registration statement  with the SEC. The updated statement notably excludes any references to staking and staking rewards. Initially, the prospectus indicated that the fund planned to stake a portion of its assets with a staking provider to generate staking rewards.

Researcher Suggests SEC Compromise on Ethereum ETFs

Alex Thorn, head of research at Galaxy Research, expressed concerns  about the possibility of the SEC classifying staked Ethereum as a security. Thorn said that if rumors of the SEC’s reversal on Ethereum ETFs were accurate, the SEC might distinguish between Ethereum, which would not be considered a security, and staked Ethereum, or even “staking as a service” Ethereum, which might be classified as securities.

Thorn also suggested  the potential approval of a spot Ethereum ETF could align somewhat with outcomes from previous court cases and the SEC’s ongoing investigations. This approach could let the SEC sanction Ethereum ETFs while still upholding its previously stated opinions and arguments regarding the regulatory status of digital assets.

 

Key Players in the Race for Ethereum ETF Approval

Several major financial institutions are at the forefront of the push for Ethereum ETF approval, each aiming to capture a share of this emerging market.

  • VanEck was the pioneer, having filed for a spot Ethereum ETF in September 2023.  The SEC has until May 23 to decide whether to approve or decline VanEck’s ETF.
  • BlackRock: BlackRock entered the Ethereum ETF market with its filing in November 2023. A new filing on March 4 sought public feedback on the possibility of listing the investment vehicle as a commodity.  The SEC has postponed its decision on the spot Ethereum ETF applications submitted by BlackRock, with analysts indicating that May is a critical month to watch for developments.
  • ARK Invest: This investment firm also threw its hat in the ring with a filing in September 2023.  The SEC has until May 24 to whether to approve or decline Cathie Wood’s firm..

Additional Contenders in the Ethereum ETF Arena

It isn’t just industry giants who are interested in Ethereum ETFs. Several other notable firms have also submitted their applications, demonstrating the wide-ranging belief in the potential of Ethereum as a foundational blockchain technology. These include:

  • Fidelity: Filed in November 2023. The SEC has postponed its decision on the spot Ethereum ETF applications submitted by Fidelity, with analysts indicating that things could happen in May.
  • Invesco Galaxy: Submitted its application in October 2023, aiming to expand its cryptocurrency offerings. The SEC has until until July 5 to decide whether to approve or decline the proposal.
  • Grayscale: Known for its Bitcoin Trust, Grayscale applied in October 2023. The SEC has until decide June 18 whether to Grayscale’s application.
  • Hashdex: Filed in September 2023, reflecting its strategy to integrate more crypto-based products. The SEC will have to make a decision by May 30.
  • Franklin Templeton: Filed for a spot Ethereum ETF in February. According to the filing, Franklin is also interested in staking the ETH held by the proposed fund. The SEC has until until November 8 to make a decision.
  • Bitwise: Bitwise filed for a spot Ethereum ETF in March. It already has an Ethereum futures ETF, known as the Bitwise Ethereum Strategy ETF (AETH). Unlike some of its potential competitors, the Bitwise S-1 lacks any language around staking. The SEC has a deadline of December 4 for this Ethereum ETF.

 

Ethereum ETFs approval dates
Credit: Sec.gov/Bloomberg

Gensler Maintains Critical Stance on Crypto Amidst ETF Approvals

Jake Chervinsky, Chief Legal Officer at Variant, an early-stage crypto fund, speculated  that the SEC might devise new reasons for denial that Grayscale had not previously contested in court. Such reasons would likely lead to further legal challenges.

In a recent interview , SEC Chair Gary Gensler declined to comment on whether he would approve the Ethereum ETF applications. He continued to express skepticism  about cryptocurrency, highlighting its “challenges” and prevalence of “abuses and fraud”.

Ethereum vs. Bitcoin: Distinct Roles and Regulatory Challenges

Crypto researcher Noelle Acheson highlights  a fundamental difference between Ethereum and Bitcoin that affets their treatment in financial products such as ETFs. Acheson said: “ETH was created to be used, not held”. She went on to suggest that, while Ethereum can function as a store of value, its primary strength lies elsewhere. Acheson described Ethereum as “the field for the largest distributed computing platform in the world”. She said it supports a wide range of decentralized applications. This, she claims, is a sharp contrast with Bitcoin, which she views primarily as a product to be held. She added: “For BTC a spot ETF makes sense. For ETH, less so.”

Another significant difference could stem from the potential classification of Ethereum as a security. Bitcoin, on the other hand, is widely regarded as a commodityCCN already reported that the SEC was investigating the Ethereum Foundation, a move that could lead to Ethereum being classified as a security. Such a classification by the SEC would have profound implications, not only for Ethereum but for the cryptocurrency market at large. It would subject Ethereum to stringent securities laws, increase the SEC’s regulatory authority over its trading, and could set a precedent for other crypto tokens.

Industry Insiders Confident in SEC’s Approval of Ethereum ETFs

Paul Grewal, Coinbase’s chief legal officer, expressed confidence , saying that there was no substantial reason for the SEC to reject Ethereum Exchange-Traded Product (ETP) applications. He pointed out that some regulators have previously recognized Ethereum as a commodity, and even the SEC has been uncertain about classifying it strictly as a security.

He said: “The SEC has no good reason to deny the ETH ETP applications. And we hope they won’t try to invent one by questioning the long-established regulatory status of ETH, which the SEC has repeatedly endorsed.”

 

Meanwhile, Scott Johnsson , an associate at Davis Polk and Wardwell, discussed a March 4 filing by BlackRock concerning its application to list and trade a spot Ether exchange-traded fund (ETF) on the Nasdaq. This filing extended the deadline for the SEC to make a decision on BlackRock’s Ethereum ETF to June. Additionally, the filing requested public feedback on whether the investment vehicle should be classified as a commodity.

Eric Balchunas also said  the SEC filing was “deeply buried in complex legal jargon”. However, he maintained that the likelihood of the SEC approving a spot Ether ETF remains “slim to none.”

The SEC’s forthcoming decision on Ethereum ETFs hinges on whether the commission classifies ETH as a security or a commodity. Although Gary Gensler has previously stated publicly that ETH is not a security, there are now reports that the commission has initiated an investigation into Ether. Moreover, Gensler will speak at the Investment Company Institute summit in Washington, D.C., coinciding with the decision deadline on May 23.

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