SEC Signals Possible Approval of Anticipated Ethereum Spot ETFs
The Securities and Exchange Commission (SEC) is moving closer to approving highly anticipated ‘spot’ Ethereum exchange-traded funds (ETFs) as soon as this week, according to sources close to the Commission. The SEC and its Chairman Gary Gensler are taking cues from recent court rulings and prior guidance on Ethereum futures ETFs to potentially grant nine issuers permission to offer products that track the daily price of Ethereum. While approval isn’t certain, SEC staff have been signaling they’re warming up to the idea of at least partially green lighting these products as soon as Thursday, which is the deadline for the agency to decide whether to approve 19b-4 applications filed by the CBOE exchange, requesting to list Ethereum spot ETFs from VanEck and Ark Investments in partnership with 21 Shares.
Surprise Engagement and Potential Approval Process
On Monday, the SEC began actively engaging with issuers and national exchanges ahead of Thursday’s deadline, similar to what it did before approving eleven ETFs that tracked the daily price of Bitcoin in January. Potential ETF issuers were surprised by what appeared to be a sudden change of heart by the agency. Many had given up hope the SEC would smile on an Ethereum spot ETF, given the lack of engagement on applications and the uncertainty surrounding the Commission’s thinking about Ethereum’s status as a possible security.
Approving the 19b-4 applications is the first in a two-part process, and the ETFs may not officially launch until later this year. The SEC’s potential blessing would be a significant development in the maturation of the $2 trillion crypto industry. A decision is expected this week on first VanEck’s and then the Ark/21 Shares spot ethereum ETF applications, due Thursday and Friday respectively.
Staking and Ethereum's Status as a Security
The SEC’s main sticking point for approving an Ethereum spot ETF appears to be the so-called “staking,” which allows investors to earn passive income by staking their Ethereum as collateral and earning a return. The SEC believes that “Ethereum 2.0,” or Ethereum issued since the blockchain’s merge to a proof-of-stake consensus mechanism in 2022, may qualify as a security.
If the SEC approves the Ethereum ETFs on Thursday without the staking component, it doesn’t negate the fact that Ethereum issued on today’s proof-of-stake network may be a security in the eyes of the Commission. FOX Business reported in April that the SEC’s Enforcement Division has been investigating Ethereum, its merge, and companies and individuals associated with it for at least a year.
Political Implications and Market Impact
Crypto has become an increasingly political issue in recent weeks, with the Biden Administration and Senate Democrats appearing worried that Republicans and GOP presidential candidate Donald Trump could seize on the growing popularity of digital assets and use the administration’s crypto crackdown to win votes. Last week, Senate Majority Leader Chuck Schumer led a group of twelve Democrats to vote to repeal a controversial SEC rule that would limit the ability of crypto companies to get fair access to the banking system.
The bitcoin price has rocketed back over $70,000 per bitcoin, while ethereum has surged around 20% to almost $4,000 per ether as the crypto market braces for a crucial vote in Washington this week. Analysts predict that imminent approval could trigger a $4.2 trillion price earthquake. If approved, the arrival of spot ethereum ETFs on Wall Street is expected to help boost the ethereum price to $8,000 by the end of 2024 and a whopping $14,000 by year-end 2025, according to Standard Chartered analyst Geoffrey Kendrick.
Odds of Approval and Market Reaction
The odds of spot ethereum ETF approval by May 31 on Polymarket, a prediction market, surged from 13% to 73% following the SEC’s request for updates from potential fund managers. Ether was set for its largest two-day gain in nearly two years on Tuesday amid speculation about the outcome of applications for U.S. spot ETFs that track the cryptocurrency.
The SEC’s potential approval of Ethereum spot ETFs would be a significant milestone for the crypto industry, as it would provide investors with a new way to gain exposure to the world’s second-largest cryptocurrency. The decision is being closely watched by market participants, as it could have far-reaching implications for the future of the crypto market and the regulatory landscape surrounding digital assets.
