Will the SEC give them the green light?
The launch of 11 spot Bitcoin exchange-traded funds (ETFs) last January was extremely popular with investors. So far, BlackRock’s iShares Bitcoin Trust leads the way, becoming the fastest ETF to reach $10 billion in assets.
These 11 ETFs have also helped boost the price of Bitcoin, which has surged about 60% year to date, surpassing $70,000. Investors are currently awaiting the possibility of a spot Ethereum ETF as the U.S. Securities and Exchange Commission (SEC) is reviewing several applications.
It’s not set in stone that it will be approved, and there are varying opinions on whether or when it may ultimately be available to investors.
SEC decides on Ethereum ETF in May
Ethereum, the blockchain network on which the Ethereum token is used, is the second-largest cryptocurrency with a market capitalization of approximately $438 billion. Ethereum is currently trading around $3,600, up about 8% this week and about 58% so far this year, similar to Bitcoin.
Several major asset managers have filed with the SEC for spot Ethereum ETFs that invest directly in Ethereum, as opposed to ETFs that invest in Ethereum futures currently on the market. Among the companies that submitted applications are Fidelity, BlackRock, Ark Invest, VanEck, Invesco, Grayscale, Franklin Templeton, Bitwise and Hashdex. The deadline for the SEC to take action against three – VanEck, Ark and Hashdex – is the end of May, with the others to follow in the summer.
Over the past few weeks, the process has been moving forward as the SEC has opened applications for the proposed VanEck, Hashdex, Ark, and BlackRock ETFs for public comment. Last week, the SEC also opened a three-week public comment period for Fidelity, Bitwise, and Grayscale products.
One issue is whether the SEC views Ethereum as a commodity or a security. When approving the spot ETF in January, Bitcoin was considered a commodity, but Ethereum’s classification was unknown. Experts said that approving spot ETFs would become more complicated and difficult if they were considered securities.
When the SEC approved a spot Bitcoin ETF in January, SEC Chairman Gary Gensler said, “This action applies to exchange-traded products (ETPs) that hold Bitcoin, which is a non-secure commodity. This should in no way indicate the Commission’s intention to approve listing standards for cryptocurrency securities. Additionally, the approval does not signal anything about the Commission’s views on the status of other cryptocurrency assets under federal securities laws. As I’ve said in the past, without prejudicing one of the crypto assets, most crypto assets are investment contracts. As such, they are subject to federal securities laws.”
In its request for public comment, the SEC raised several questions: “The exchange supports the listing and trading of the stock by making substantially similar arguments to those presented in the proposal to list and trade the Bitcoin spot exchange-traded product. Do commenters agree that the arguments supporting listing Bitcoin ETPs apply equally to stocks?”
Different 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 his company’s application as one of the first candidates “will probably be rejected.”
“The legal process is for regulators to comment on your application,” Van Eck told CNBC. “It’s falling,” he said.
At the other end of the spectrum, analysts at Standard Chartered predicted that an ETF could see Ethereum surge to more than $8,000 per share by the end of 2024.
JPMorgan Chase strategist Nikolaos Panigirtzoglou takes a middle ground, telling The Block that he expects a spot Ethereum ETF to eventually be approved.
“If there is no approval of a spot Ethereum ETF in May, we assume there will be legal proceedings after May,” Panigirtzoglou told The Block. “We believe the most likely scenario is that the SEC ultimately loses this lawsuit (similar to what happened with Grayscale and Ripple’s legal battle last year), which means the SEC will eventually approve a spot Ethereum ETF.”
So the situation is currently on hold, but please stay tuned for news leading up to the first decision date scheduled for May 23rd.
