The long-awaited ether ETFs are finally arriving on major stock exchanges after the Securities and Exchange Commission (SEC) greenlighted applications on Thursday. This ether ETF approval signifies a symbolic victory, reflecting a surprising shift in the U.S.’s regulatory stance towards digital assets and cryptocurrencies.
Major players like Ark/21 Shares, Fidelity, BlackRock’s iShares, Franklin Templeton, Grayscale, and VanEck are poised to launch their ether ETF products soon, pending effectiveness of their prospectuses. The ether price surged above $3,800 on this SEC approval news for ether ETFs listed on exchanges.
The Significance of Ether ETF Approval
The approval of ether ETFs by the Securities and Exchange Commission (SEC) is a significant milestone for the crypto industry, signaling a growing acceptance and legitimization of digital assets by U.S. regulators. This development represents a symbolic victory for the crypto industry, reflecting an unexpected shift in the U.S. regulatory stance towards digital assets and cryptocurrencies.
Symbolic Victory for Crypto
The ether ETF approval is being hailed as a symbolic victory for crypto, marking a larger unexpected softening on the U.S.’s regulatory stance. Until earlier this week, most industry participants were expecting a denial, given the threat of enforcement action against a major Ethereum-based software developer and the unusual silence around the ether ETF applications, suggesting a “no” was inevitable.
Shift in U.S. Regulatory Stance
The SEC’s approval of ether ETFs represents a significant shift in the U.S. regulatory stance towards digital assets. For months, crypto industry participants were pessimistic about an approval in May due to a lack of engagement from the SEC. However, on Monday, the agency instructed major exchange operators Nasdaq, Cboe, and the New York Stock Exchange to amend their applications to list spot ether ETFs, signaling that the regulator may be leaning toward approving such products.
This change suggests that the political environment is becoming more friendly to the crypto industry as the U.S. election approaches, according to Quinn Thompson, founder and chief investment officer at digital-asset hedge fund Lekker Capital. The House of Representatives passed landmark crypto legislation, FIT-21, which would create a targeted disclosure and registration regime for digital-asset companies and grant primary responsibility for regulating the industry to the Commodity Futures Trading Commission instead of the SEC. The Biden administration’s statement on the law also buoyed hopes that Democratic regulators would take a more conciliatory approach to the industry going forward.
Key Players and Products
List of Issuers Approved for Ether ETFs
Almost all of the issuers that launched spot bitcoin ETFs in January are in line to offer ether funds — Ark/21 Shares, Bitwise, BlackRock’s iShares, Fidelity, Franklin Templeton, Grayscale, Invesco/Galaxy, Hashdex and VanEck. Would-be spot ether ETF issuers include BlackRock, Fidelity, Grayscale, VanEck, Franklin Templeton, Ark/21Shares and Invesco/Galaxy. VanEck expects to be the first issuer to launch its spot ether ETF, said the company’s head of digital assets research, Matthew Sigal.
The SEC approved 19b-4 forms for the ETFs from BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy and Franklin Templeton. While the forms have been approved, the ETF issuers need to have their S-1 registration statements go effective before trading can begin.
Valkyrie’s Absence and Reasons
Valkyrie is sitting out the race, for business reasons. CoinShares and Valkyrie, issuers of spot BTC ETFs, will not apply for a spot ETH ETF. The primary reason cited is the absence of a staking function. The companies believe that without this feature, the ETF lacks value for investors, particularly in a market already crowded with nine issuers.
Bitcoin ETF issuer, Valkyrie Funds will not apply for a spot Ethereum ETF in the United States due to regulatory issues surrounding staking. According to the post on X (formerly Twitter), the company flags the recent staking issue as a major reason because investors may not see value without the feature. Furthermore, the crowded nature of applications will reduce profitability for investors without staking.
Staking was lauded as a game changer for Ethereum attracted institutional investors to the asset because of the profitability of staking following the transition to a Proof-of-Stake (PoS) network. However, the SEC hinted that assets that allow holders to stake could be classified as securities. This led to reduced optimism as seen in the case of Valkyrie Funds. Most of the Ether ETF issuers are removing the staking feature from their application as having it would conflict with the SEC’s securities laws.
Behind the Scenes
Unexpected Approval Amid Enforcement Concerns
The Securities and Exchange Commission’s (SEC) approval of ether ETFs came as a surprise, given the agency’s relative silence over the pending applications in recent months. Many in the cryptocurrency industry regarded an approval this year as a pipedream, with Bloomberg analysts predicting the odds of approval to be as low as 25% as late as Monday afternoon.
However, in a sudden turn of events, on Monday, the SEC instructed major exchange operators Nasdaq, Cboe, and the New York Stock Exchange to amend their applications to list spot ether ETFs, signaling that the regulator may be leaning toward approving such products. This unexpected shift in the SEC’s stance has left the industry puzzled, as it contradicts the agency’s previous lack of engagement on the matter.
Potential Political Influences
Experts suggest that the SEC’s change of heart regarding ether ETFs was likely a political, top-down order, driven by the growing influence of the crypto industry as a voting bloc. The approval on Thursday is seen as “proof that the crypto crowd is a legitimate voting block,” according to VanEck’s Matthew Sigel.
- Bipartisan Pressure: A bipartisan group of crypto-friendly House lawmakers urged the SEC and Chairman Gary Gensler to approve the ETFs in a letter on Wednesday, arguing that an approval would offer investors access to crypto in a safer, more transparent, and regulated format.
- Election Year Considerations: With the U.S. election approaching, the political environment is becoming more friendly to the crypto industry. The Democrats may not want to lose votes from single-issue voters to Donald Trump and the Republicans, who have begun embracing crypto more explicitly than ever before.
- Biden Administration’s Shift: The Biden administration’s statement on the crypto legislation FIT-21, which seeks to create a federal framework for regulating crypto, buoyed hopes that Democratic regulators would take a more conciliatory approach to the industry going forward. This evolution in Biden’s thinking could be seen as a calculated decision to back off crypto, at least for now, to avoid losing a few million votes in a tight election.
The approval of ether ETFs is seen as a visible way for the SEC to appease the growing political pressure surrounding crypto regulation, signaling a recognition that crypto is a bipartisan issue and is here to stay. However, some experts believe that this move may represent nothing more than a cold and calculated political maneuver by the SEC, rather than a meaningful change in its outlook on crypto.
Conclusion
The approval of ether ETFs by the SEC marks a significant milestone in the journey of cryptocurrency adoption and regulation. It symbolizes a shift in the U.S. regulatory stance towards digital assets, acknowledging the growing influence and legitimacy of the crypto industry. This development opens up new avenues for institutional and retail investors to gain exposure to ether, the native cryptocurrency of the Ethereum network, through regulated and transparent investment vehicles.
While the unexpected approval has sparked speculation about potential political motivations, it undoubtedly represents a victory for the crypto community. The launch of ether ETFs by major players like BlackRock, Fidelity, and Grayscale is poised to drive increased institutional participation and mainstream adoption of cryptocurrencies. As the industry continues to evolve, further regulatory clarity and collaboration between stakeholders will be crucial in fostering a secure and innovation-friendly environment for digital assets.
