Ethereum ETFs: Will the SEC Give Them the Go-Ahead?

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The launch of 11 spot bitcoin exchange-traded funds (ETFs) in January proved to be immensely popular with investors. Thus far, BlackRock’s iShares Bitcoin Trust has led the way, becoming the fastest ETF to reach $10 billion in assets.  

Those 11 ETFs have also helped juice the price of bitcoin, which has skyrocketed past $70,000 and soared about 60% year to date. Now investors are waiting on the possibility of spot Ethereum ETFs, as the U.S. Securities and Exchange Commission is currently reviewing several applications.

It is certainly not a given that they will be approved, and there is a wide range of opinions on if — or when — they ultimately might become available to investors.

SEC to decide on Ethereum ETFs in May

Ethereum, the blockchain network on which the ether token is used, is the second-largest cryptocurrency with a market cap of about $438 billion. Ether is currently trading at around $3,600, up some 8% this week and up about 58% year to date, similar to bitcoin.

Several leading asset managers have filed applications with the SEC for spot Ethereum ETFs, which invest directly in ether, as opposed to ETFs currently on the market that invest in Ethereum futures. Among those that have filed applications are Fidelity, BlackRock, Ark Invest, VanEck, Invesco, Grayscale, Franklin Templeton, Bitwise and Hashdex. The deadline for the SEC to act on three of them — VanEck, Ark, and Hashdex — is in late May, with deadlines for the rest to follow over the summer.

The process is moving forward as the SEC opened up the applications for the proposed VanEck, Hashdex, Ark and BlackRock ETFs for public comment over the last several weeks. Last week, the SEC opened up three-week public comment periods for the Fidelity, Bitwise and Grayscale offerings as well.

One issue relates to whether the SEC views Ethereum as a commodity or a security. It deemed bitcoin a commodity when approving the spot ETFs in January, but its categorization of Ethereum is unknown. If it is considered a security, it would become more complicated and difficult to approve the spot ETFs, experts say.

When the SEC approved the spot bitcoin ETFs in January, SEC Chair Gary Gensler said the “action is cabined to ETPs [exchange-traded products] holding one non-security commodity, bitcoin. It should in no way signal the commission’s willingness to approve listing standards for crypto-asset securities. Nor does the approval signal anything about the commission’s views as to the status of other crypto assets under the federal securities laws … As I’ve said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws.”

In the request for public comment, the SEC posed several questions, including: “The exchange raises substantially similar arguments to support the listing and trading of the shares as those made in proposals to list and trade spot bitcoin exchange-traded products. Do commenters agree that arguments to support the listing of Bitcoin ETPs apply equally to the shares?”

Range of opinions on what the SEC will do

There seems to be a healthy dose of pessimism about anything being approved as early as May. This week, VanEck CEO Jan Van Eck told CNBC that, as one of the first in line, his firm’s application will “probably be rejected.”

“The way the legal process goes is the regulators will give you comments on your application, and that happened for weeks and weeks before the bitcoin ETFs — and right now, pins are dropping as far as Ethereum is concerned,” Van Eck told CNBC.

At the other end of the spectrum, analysts at Standard Chartered predicted that the ETFs would be approved and catapult Ethereum to more than $8,000 per share by the end of 2024.

Staking out the middle ground, JPMorgan Chase strategist Nikolaos Panigirtzoglou told The Block that he expects spot Ethereum ETFs to be approved — eventually.

“If there is no spot Ethereum ETF approval in May, then we assume there is going to be a litigation process after May,” Panigirtzoglou told The Block. “We believe that the most likely scenario is that the SEC eventually loses this litigation (similar to what happened with the Grayscale and Ripple legal battles last year), which means that eventually, the SEC will approve spot Ethereum ETFs.”

Thus, things are currently in a holding pattern, but stay tuned for news leading up to the first decision day set for May 23.