SEC rule approvals set stage for spot ether ETF launches
After accelerating conversations with issuers, the SEC took a step toward allowing ETH funds to launch
Artwork by Crystal Le
The Securities and Exchange Commission signed off on ether ETF proposals Thursday, bringing their potential launches one step closer.
The US securities regulator approved 19b-4 proposals submitted by the Cboe, NYSE Arca and Nasdaq exchanges “on an accelerated basis,” according to a notice posted on the agency’s website just after 5 pm ET.
Those three exchanges seek to list spot ether ETFs by VanEck, Ark Invest, BlackRock, Fidelity, Franklin Templeton, Bitwise, Grayscale and Invesco. The SEC order is one step toward those planned funds hitting the market.
“After careful review, the commission finds that the proposals are consistent with the Exchange Act and rules and regulations thereunder applicable to a national securities exchange,” the Thursday SEC order states.
The Exchange Act is designed to “prevent fraudulent and manipulative acts and practices” as well as “protect investors and the public interest,” the SEC notes.
Prior to any spot ether ETFs being able to trade, however, the SEC must also approve S-1 registration statements filed by the fund issuers.
“We appreciate the opportunity to engage constructively with regulators as they review spot Ethereum ETFs,” a Grayscale spokesperson said in a statement.
Industry watchers have noted the S-1 approvals could take time.
“There will be days (at a minimum), likely at least weeks, and potentially months between approval and launches here,” Bloomberg Intelligence analyst James Seyffart said in a Tuesday X post.
Matthew Sigel, VanEck’s head of digital assets research, applauded the SEC’s decision in a Thursday blog post, noting “we believe the evidence clearly shows that ETH is a decentralized commodity, not a security.”
“We expect this trend will pave the way for more victories via new laws and in the courts, helping to draw investment to Bitcoin, Ethereum, and other open-source blockchain software,” he added.
A winding road
Movement toward possible ether ETF approval accelerated earlier this week when Seyffart and fellow Bloomberg Intelligence analyst Eric Balchunas upped the 19b-4 approval odds from 25% to 75% — citing increased engagement between the SEC and fund groups.
The SEC had until May 23 to rule on a proposal by fund group VanEck, and until May 24 to decide on another by Ark Invest and 21Shares. Still, it was expected the regulator would approve or deny the full slate of ether ETFs before them.
Some have said the SEC’s seeming change of heart to get ether ETFs approved could be linked to recent political developments just months ahead of the presidential election.
Read more: Politics, amendments, staking: Making sense of the ether ETF developments
To that end, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act on Wednesday. That same day, five congressmen penned a letter to Gensler urging the SEC to approve spot ether ETFs.
Others interpreted the lack of SEC engagement with issuers (until the last few days) differently.
Grayscale Chief Legal Officer Craig Salm said in a series of March posts on X that the SEC had ironed out many details — related to custody, authorized participants and creation-redemption procedures, for example — in the lead-up to spot bitcoin ETF approvals in January.
Indeed, 21Shares co-founder Ophelia Snyder said in a March interview with Blockworks co-founder Jason Yanowitz that because of overlap with the bitcoin and ether ETF proposals, there was “less to look at” for the SEC.
One of the main differences between spot bitcoin ETFs and the ether fund proposals, however, involved issuers looking to stake their ETH holdings.
Staking ether involves depositing ETH to help secure the Ethereum blockchain — and earning yield in exchange for doing so.
Stock exchanges and issuers amended their filings in recent days to remove language around staking — a feature of the planned funds that segment observers predicted the SEC would oppose.
Despite many increasing their odds on SEC approval of ether ETFs in recent days, questions remained around the status of ether as a security or commodity, for example.
Variant Chief Legal Officer Jake Chervinsky noted that SEC approval of spot ether ETFs would likely mean the agency does not view unstaked ETH a security, calling such a scenario “a major policy move.”
Updated May 23, 2024 at 6:15 pm ET: Added comments from Grayscale and VanEck.
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