Bitcoin ETFs are all the rage — why not Ethereum?

As optimism grows regarding the potential approval of a bitcoin ETF in the United States, industry watchers suggest that fund issuers may soon apply to launch products holding crypto’s second-largest asset.

Yet the fate of such yet-to-be-filed ether funds would likely hinge on how the SEC treats the latest wave of filings from spot bitcoin ETF hopefuls. 

The recent effort by asset management titan BlackRock to launch an ETF that would hold bitcoin directly has reinvigorated a decade-long attempt by a range of firms to get such an offering past the SEC. 

The $9 trillion asset manager’s filing was followed by renewed attempts by Bitwise, WisdomTree, Invesco and Valkyrie to launch similar products.

The latest rush of spot bitcoin ETF proposals indicates prospective issuers believe “now is the time,” according to Neena Mishra, director of ETF research at Zacks Investment Research.

“I would not be surprised to see an application to launch a spot ether ETF in the coming weeks,” she told Blockworks. “If one issuer starts the process, others would quickly join the race, not wanting to be left behind.”

But Townsend Lansing, head of product at crypto asset manager CoinShares, said ether ETF filings likely don’t make much sense right now — beyond being a publicity stunt. 

“The SEC would react the same way it has reacted to all the BTC filings,” he said. “It would analyze the filing, seek public comments, look at the underlying market and presumably reject it for a failure to evidence a proper surveillance-sharing agreement.”

Read more: How ‘surveillance-sharing’ is designed to deter bitcoin ETF manipulation

But a spot bitcoin ETF approval would further add interest from fund issuers to try ether (ETH) next, some said.

“It would indicate that the new proposed surveillance arrangement is enough to address their concerns and the same would apply to the second largest cryptocurrency,” Mishra said.

Lansing agreed, in the case of the SEC greenlighting a spot bitcoin ETF, that fund issuers looking to launch an ether ETF next is “a reasonable assumption.” 

But the potential for such a product to be approved would depend on the SEC’s reasoning for permitting a spot bitcoin ETF, “and the extent to which the ether market exhibits similar characteristics,” he added.

“Despite the recent press and surge of filings, we continue to believe approval of any spot crypto ETF remains a difficult proposition,” Lansing said.

Andra Nicolau, head of business development and strategy at Origin Protocol, believes that it might still be premature to expect a spot ether ETF based on the demand for such a product.

She noted that institutional investors who hold bitcoin understand the asset’s scarcity and the need for it as a store of value amid inflation. 

“Ethereum is better understood by those who understand technology and rebuilding the internet from the ground up,” Nicolau said. “That doesn’t mean that ETH is not ETF worthy. It just means it may take a little while longer.”

An ether futures ETF first?

The SEC greenlit bitcoin futures ETFs in 2021 after Chair Gary Gensler said earlier that year the regulator would prefer reviewing filings limited to such contracts traded on the Chicago Mercantile Exchange (CME). 

Bitcoin futures are cash-settled and are regulated by the CFTC — attributes some have said offer the SEC an additional layer of comfort.

Grayscale Investments and Bitwise were among several firms in May to file for ETFs that would hold ether futures contracts. But these firms quickly halted plans to do so. 

Two sources directly familiar with the matter told Blockworks those moves came after the SEC asked the firms to pull the plans — telling them the regulator is not yet ready to approve such products. A spokesperson for the regulator did not return a request for comment at the time.

Industry participants have labeled concerns around current ether futures liquidity levels, as well as a lack of clarity on whether ether is considered a security or a commodity, as possible rationales. 

But concerns over the liquidity of the ether futures market would not apply to spot ether ETFs, Mishra argued.

“The approval of a spot bitcoin ETF would mean that the SEC’s main concerns regarding fraud and manipulation, which many thought were inconsistent, have been addressed,” she said. “I don’t think there would be any need for the agency to experiment with a futures-based ether ETF first.”

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