The Securities and Exchange Commission appears poised to approve several spot Ethereum exchange-traded funds (ETFs) as soon as Thursday, according to sources close to the agency, in a sudden change of course that has surprised many in the crypto industry.
SEC APPROVES ETHEREUM ETFs pic.twitter.com/5sNY0hkqSN
— Radar🚨 (@RadarHits) May 23, 2024
After months of limited engagement with ETF issuers, the SEC this week began urgently requesting documentation and updates to key filings, suggesting the agency is preparing to allow the ETFs to move forward. As many as eight issuers including BlackRock, Fidelity, Grayscale and others could gain approval for their proposed spot Ethereum funds.
Key Details of the Approval
The SEC’s decision to approve the 19b-4 forms for these ETFs was unexpected, given the agency’s previous reluctance to engage with issuers. The approved forms include those from BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy, and Franklin Templeton. However, these issuers must still have their S-1 registration statements go effective before trading can begin.
Bloomberg ETF analyst James Seyffart noted, “If they work extremely hard, it can be done within a couple of weeks, but historically, this process can take three or more months.”
The SEC’s apparent reversal comes after a federal court rejected the agency’s rationale for denying a spot Bitcoin ETF last year, as well as growing bipartisan political pressure to approve the products. Still, a key sticking point appears to be the SEC’s discomfort with ETFs participating in Ethereum “staking” – a sign the agency may still view the cryptocurrency as a security.
Industry Reaction and Market Impact
The reaction from the market has been swift. As approval chances increased, the Grayscale Ethereum Trust discount shrank from -24% to -6%. This indicates strong investor confidence that the trust will soon convert into an ETF, allowing holders to exchange shares for the underlying ether’s cash value.
Despite the positive response, there are doubts about whether Ethereum ETFs will achieve the same level of success as Bitcoin ETFs. Bloomberg analyst Eric Balchunas estimated that Ethereum ETFs might capture only 10 to 15% of the assets that Bitcoin ETFs have garnered, translating to $5 to $8 billion.
The launch of spot Ethereum ETFs would mark another major milestone for the maturing crypto industry. The funds are expected to attract significant investor assets, though perhaps not on the scale of the Bitcoin ETFs approved earlier this year. Those funds have already gathered over $14 billion on top of the $42 billion converted from the Grayscale Bitcoin Trust.
As the crypto industry watches for final word from the SEC, the sudden momentum behind the Ethereum ETFs underscores the sector’s growing political clout and the challenge regulators face in adapting rules to the fast-moving world of digital assets.
