Key Takeaways:
In a watershed moment, the US Securities and Exchange Commission (SEC) on Thursday announced it has approved applications to list exchange-traded funds (ETFs) tied to the price of Ether (ETH) from issuers including, BlackRock, ARK Investments, VanEck, potentially greenlighting the trading of the second-largest cryptocurrency on Wall Street.
Until Monday, the market had for the most part expected the financial watchdog to reject the proposals.
Spot Ethereum ETFs Greelit by the US Securities and Exchange Commission
The SEC has approved eight spot Ethereum ETFs, including BlackRock’s iShares Ethereum Trust, the recently converted Grayscale Ethereum Trust, VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund, and Franklin Ethereum ETF.
The issuers hope to launch ETFs linked to the second-largest cryptocurrency later this year.
Bloomberg’s ETF analyst James Seyffart suggested in an X post that it could be a “couple of weeks” before the S-1 documents from the fund managers are approved, enabling them to list their ETFs on the stock market.
The SEC Form S-1 is a legal document and initial registration statement that US companies must file with the Securities Commission before they conduct an initial public offering (IPO) to list their securities on a public stock exchange like the NYSE or Nasdaq.
As of now, these funds have only received approval for their 19b-4 filings, which is a form that national securities exchanges and registered clearing agencies must submit to the SEC to propose changes to rules and regulations.
Seyffart noted that typically the approval process takes up to five months, but in the case of spot Ethereum ETFs, this could accelerated. He referred to the case of spot Bitcoin ETFs, which were fully approved and began trading just 90 days after the 19b-4 filing.
SEC Asks Public Exchanges to Submit 19b-4 Forms of Spot Ethereum ETF Issuers
Just a week ago, financial experts and industry leaders had written off the possibility of a spot Ethereum ETF trading in the US market. The SEC offered little indication that it planned to move forward with applications for ETFs backed by Ethereum, before a looming May 23 deadline.
Thursday was the deadline for the SEC to decide on VanEck’s spot Ethereum ETF filing. Market participants were bracing for dismissal from the SEC because the agency had yet to engage with the applicants.
However, in a surprise turn of events, SEC officials on Monday asked the exchanges, including the Nasdaq, CBOE, and NYSE to quickly get going with fine-tuning the ETF filings. The news sent the exchanges and fund issuers scrambling to complete weeks of work in just days.
Just weeks prior to the announcement, a lawsuit was filed against the SEC by Ethereum software company Consenys, alleging that the regulator secretly considered ETH to be an illegal, unregistered security for over a year. The caveat here is that if the SEC formally labeled Ethereum a security, then the spot ETH ETFs would need to be approved via a different process than the one that is currently underway.
The regulator rejected spot Bitcoin ETFs for more than a decade over concerns of market manipulation and fraud but was forced to approve the funds following Grayscale’s court victory over the regulator last year.
With today’s ETF approval, the SEC has conceded that Ethereum is not a security in and of itself. Such an outcome would be a major victory for the crypto industry which considers Ethereum one of the most prominent blockchains on which some of the leading cryptocurrency projects and services are built.
Issuers Remove ETH Staking Option From Updated Spot Ethereum ETF Proposal
However, a crucial amendment was made to the ETF proposal to get it over the finish line. Several spot Ethereum ETF issuers have dropped language from their applications this week that was related to the staking of customer ETH.
This is important because ever since the Ethereum blockchain transitioned from a proof-of-work (PoW) to a proof-of-stake (PoS) ecosystem in September 2022, ETH holders have been able to deposit their tokens within the network to accrue rewards.
The SEC looked into this mechanism but concluded that when a financial intermediary offers staking services, it is engaging in an illegal unregistered securities scheme. Fearing a rejection, issuers removed the staking option from their spot Ethereum ETF proposals.
Unlike the Ethereum futures ETFs, which track derivatives contracts tied to Ether and were approved by the SEC in October 2023, spot Ethereum ETFs involve the issuers buying and storing ETH on behalf of their clients.
Since the ten Bitcoin ETFs began trading in January, the funds have attracted nearly $13 billion in net inflows. Experts believe that with spot Ethereum ETFs added to the mix, crypto could be making a giant leap into the traditional financial markets, unlocking trillions of dollars worth of liquidity.
Cody Carbone, chief policy officer at crypto lobbying group Digital Chamber of Commerce, said in a statement that if the spot Bitcoin ETF approval was Bitcoin’s IPO, then the approval of spot Ethereum ETFs could be ETH’s IPO, which he claims is “massive stamp of approval”.
At the time of writing, Ether (ETH) is trading at $3,739 – down 0.7% in the last 24 hours.
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