Ethereum
What the SEC Pivot Means to Approve Spot Ether ETFs
Key takeaways
- The Securities and Exchange Commission (SEC) on Thursday approved a rule change that will allow spot exchange-traded funds (ETFs) to be listed on ether in the future.
- However, due to remaining regulatory steps in the process, the new ETFs will likely not be available for trading until July or August.
- The SEC approval, which seemed unlikely a week ago, could indicate a positive change in the regulatory environment for the crypto industry in the United States.
- Fund inflows into these new ether products may be limited by the lack of access to staking which rewards users for their liquidity.
The U.S. Securities and Exchange Commission (SEC) surprised market watchers on Thursday by approved the list of spot exchange-traded funds (ETFs) on American stock exchanges. Ether is the underlying cryptocurrency of Ethereum crypto network, the second largest such network after bitcoin in terms of market capitalization.
What impact will this historic regulatory decision have on the cryptocurrency market?
Spot Ether ETFs May Not Be Listed for Months
While Thursday’s decision to approve the spot ether ETF Forms 19b-4 from issuers hoping to launch the funds was a major step forward, ongoing associated products from BlackRock, Grayscale, Fidelity and others cannot yet be listed.
This is because the S-1 Registration Filings applications submitted for these products must also be approved, which can take anywhere from a few weeks to a few months. According to a report by Galaxy Digital, July or August are the likely months when ether spot ETFs will begin trading.
The SEC’s change of heart
The SEC’s recent reversal to approve ether spot ETF applications was not anticipated by many prior to some major developments earlier this week. The SEC had request spot ETF applicants to make changes to their filings on an expedited basis as deadlines for agency decisions on them approached.
There appears to have been a reversal of policy behind the scenes at SECOND, which in the crypto industry is considered political in nature. An unidentified source told crypto publication The Block that the decision was “a completely unprecedented situation, which means it’s entirely political,” due to the lack of internal coordination between SEC departments on the issue. .
Earlier in May, former President Donald Trump, in a speech, courted the crypto industry that the Biden administration has moved to regulate, a departure from Trump’s criticism of cryptocurrency in the during his presidential term.
The SEC’s recent ruling on spot ETFs could also have implications for the entire crypto industry. While Republicans have generally been receptive to crypto and blockchain technologyParticularly when it comes to bitcoin, Democrats have been seen primarily as opponents of the technology.
Democrats, led by the Biden administration, taking a softer regulatory approach to crypto could mean more crypto companies and projects are likely to consider the United States as a base of operations.
Additionally, the pivotal spot ETF ruling could have implications for ether’s status as a security, which is a legal avenue the SEC had been exploring. According to Bloomberg analyst James Seyffart, the SEC is explicitly stating with these recent approvals that ether is not a security, as future ETFs are called commodity-based trust stocks.
How will these ETFs affect the price of Ether?
Ether is up about 20% this week, but opinions differ on whether the price could rise. Even though Bitcoin has benefited greatly from the approval of Bitcoin Spot ETFWith these products seeing inflows of around $13 billion since their approval in January, it’s unclear whether Wall Street will have a similar appetite for ether.
Notably, ether ETFs based on futures contracts hasn’t gained much ground after their launch in 2023.
Additionally, the existence of a prior Ether fund from digital asset manager Grayscale could limit flows to new ETFs in the short term, as was the case with a similar Bitcoin product. That said, some analysts, such as Lekker Capital founder Quinn Thompson, still believe that ether spot ETF approvals can help the alternative crypto asset outperform bitcoin.
One of the main limitations of spot ether ETFs, at least for now, will be their lack of access to staking. Aether can be staked on the Ethereum network to participate in the consensus and validation process, similar to proof of work mining process in Bitcoin.
Stakers are rewarded with transaction fees and newly issued ether, allowing them to earn a return on their ether in exchange for their liquidity. Since ether held by ETF issuers cannot be staked, opting for a spot ether ETF instead of an alternative option to purchase the cryptocurrency will incur a huge opportunity cost.