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Grayscale Aims to Checkmate the SEC with Its ETH ETF

Last Updated November 16, 2023 10:05 AM
Teuta Franjkovic
Last Updated November 16, 2023 10:05 AM

Key Takeaways

  • Grayscale may be using its ETH futures ETF application as a way of pressuring the SEC into approving spot Ether ETF.
  • Grayscale is arguing that the SEC is treating Bitcoin and Ether futures ETFs differently.
  • Both Grayscale and industry experts believe that Grayscale is unlikely to launch the Ether futures ETF.

Grayscale Investments submitted its Ether futures ETF bid to the Securities and Exchange Commission (SEC) in September while waiting for its Bitcoin spot ETF approval.

This strategic move by Grayscale is being interpreted as a way to gain leverage over the SEC and push for the approval of its spot Ether exchange-traded fund (ETF).

If the SEC greenlights Grayscale’s application, it would provide Grayscale with the upper hand in negotiations with the regulator.

On the other hand, if the SEC rejects Grayscale’s bid, the asset manager could argue that the SEC is treating Bitcoin and Ether futures ETFs differently.

Grayscale’s Changes Strategy After SEC Postpones Decision

According to Bloomberg ETF analyst James Seyffart , Grayscale is strategically using its Ether futures ETF application as a tactical move in the regulatory chess game, aiming to corner the United States SEC into approving its spot Ether ETF.

Just yesterday, November 15, the SEC postponed its decision  on the Grayscale ETF.

“The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein,” the SEC stated in its filing .

Simultaneously, the SEC faces the task of reviewing several applications for spot Bitcoin ETFs. Numerous prominent Wall Street firms, including BlackRock, have submitted their own product proposals to the regulator.

Seyffart expressed  in a Twitter post that if the SEC greenlights Grayscale’s application, it would provide Grayscale with leverage to advocate for the approval of its spot Ether ETF application.

Conversely, if the SEC rejects Grayscale’s bid, the asset manager could argue that the SEC is treating Bitcoin and Ether futures ETFs differently, allowing one under the Securities Act of 1933 but not the other.

Seyffart emphasized that it’s now a matter of observing whether the SEC approves and explains the differentiation from the spot or denies and argues the meaningful differences between 1933 Act products and 1940 Act products. He deemed both outcomes unfavorable for the SEC and labeled it a strategic move by Grayscale.

Strategic Chess Move To Force SEC Approval Of Its Spot Ether ETF

Grayscale submitted its Ether futures ETF bid using form 19b-4, a filing informing the SEC of a security-based swap request. Seyffart noted that none of the approximately 40 approved Ether ETF products went through the 19b-4 approval process.

Initially uncertain about Grayscale’s choice of the 19b-4, Seyffart now believes  Grayscale is engaging in a regulatory “chess” match with the SEC. By utilizing the Ether Futures ETF as a “trojan horse,” Grayscale aims to secure a 19b-4 order from the regulator, putting them in a lose-lose situation.

Seyffart and Scott Johnsson, General President at Van Buren Capital General, both agreed that Grayscale is unlikely to launch the Ether futures ETF, viewing it as a strategic vessel to navigate spot ETH approval.

Seyffart’s observations come as the SEC delayed its decision on Grayscale’s Ether futures ETF only two days ahead of the November 17 deadline. Hashdex’s application to convert its Bitcoin futures ETF into a spot product also faced a hold  from the SEC on the same day. Last week, BlackRock echoed Seyffart’s sentiment, contending that the SEC lacks a valid reason to treat cryptocurrency spot and futures ETF applications differently.

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