Key Takeaways

• Nasdaq has filed an SEC application to list an ETF that invests in both spot Ether markets and Ether futures.
• The proposed fund would be issued by the Brazilian digital asset manager Hashdex.
• The SEC has so far resisted spot crypto funds but endorsed their futures-based equivalents.
• Could mixed spot/futures ETFs could overcome the impasse?

The US Securities and Exchange Commission (SEC) has so far resisted allowing  Exchange-Traded Funds (ETF) to directly hold cryptocurrencies. Yet, since 2021, several funds that invest in cryptocurrency futures markets have been approved. 

With the SEC currently stalling its decision on several spot Bitcoin ETF applications, Nasdaq has proposed listing a mixed spot/futures fund as a novel third path.

Assuaging SEC Concerns Over Market Manipulation

On Tuesday, September 12, Nasdaq filed an SEC application  to list an ETF that invests in both spot Ether markets and Ether futures. The fund would be issued by Hashdex, a Brazilian firm specializing in digital asset management.

The decision to mix direct cryptocurrency investments with crypto futures is framed in terms that are designed to appease the SEC’s objections to spot crypto ETFs. Namely, the Commission’s concerns that spot cryptocurrency markets are vulnerable to manipulation.

Nasdaq’s filing argues that “instead of holding 100% spot Ether, which could make it more susceptible to price manipulation in the spot market, the Fund will hold a mix of Spot Ether, Ether Futures Contracts, and cash.”

Securing a Role for the CME

To the SEC, allowing crypto futures ETFs is justified because futures contracts are issued by the Chicago Mercantile Exchange (CME). 

Crypto spot trades, on the other hand, are facilitated by exchanges that the SEC hasn’t sanctioned. (And which it therefore views illegal, according to the SEC’s classification of the majority of cryptocurrencies as securities.)

In response, to the SEC’s stance on spot crypto ETFs, the Nasdaq–Hashdex application insists that the fund will incorporate “dynamic investment restrictions,” designed to mitigate the risk of market manipulation.

As the filing notes, the fund would ensure that the CME is the only “market of significant size’” facilitating investments for the proposed ETF.

Overcoming the ETF Impasse

Ultimately, critics have argued that the SEC’s logic is flawed and it has been questioned by US courts. 

Regardless of how much oversight the SEC exercises over the CME, crypto futures are still bound by the price of the underlying assets they track. They are thus subject to the same manipulation and volatility risks of crypto markets.

That being said, if they help appease the SEC and weaken its resistance to allowing ETFs to directly hold cryptocurrency, mixed funds could overcome a regulatory hurdle that has constrained the growth of crypto investment in the US.