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Ethereum spot ETFs have finally received the green light after a period of uncertainty. Thursday's approval not only marked a milestone for Ethereum, but also a positive development in the US regulatory approach to cryptocurrencies. This article will provide more information on the recent approval, its possible motivation, and its implications for the industry.
An Overview of Ethereum ETF Spot Approval
On May 23, the US Securities and Exchange Commission (SEC) approved 19b-4 forms associated with eight Ethereum spot ETFs. These include Blackrock's iShares Ethereum Trust, VanEck Ethereum Trust, Fidelity Ethereum Fund, ARK 21Shares Ethereum ETF, Franklin Ethereum ETF, Bitwise Ethereum ETF, Grayscale Ethereum Trust, and Invesco Galaxy Ethereum ETF.
The latest approval follows the Bitcoin Spot ETFs Debut in the United States in January. However, unlike Bitcoin ETFs, Ethereum products still need Form S-1 approval to fully function, which is now pending review.
As Crypto Briefing reported, the securities watchdog recently started interact with ETF issuers on S-1 forms. This development also confirmed some previous speculation that the SEC lacked interaction with issuers during the review process.
Taking into account previous cases, Bloomberg ETF analyst James Seyffart estimates that it may take up to five months for the SEC to clear Ethereum spot funds for trading. However, the analyst suggests that the schedule can be extended.
Key factors influencing approval
According to the SEC approval documentThe correlation between Ethereum futures and spot markets was one of the key factors influencing the decision.
Notably, the SEC conducted its own analysis to verify the correlation results provided by the Bitwise amendments and other commenters, including the Coinbase Letters and CF Benchmarks. The SEC's findings confirmed the reported high correlations, indicating a strong link between CME Ethereum futures and Ethereum spot markets.
Other considerations addressed in the approval document include investor protection, market integrity, volatility and risk concerns.
However, Jake Chervinsky, Variant's chief legal officer, reclaimed that the SEC could “explicitly avoid gambling” in its document.
There have been ongoing discussions regarding the SEC's stance on Ethereum's staking feature. Analysts believe that the removal of stake componentor the claim not to bet on Ethereum ETF filings is as important as other key factors influencing the decision.
Large companies like Fidelity and ARK 21Shares initially included staking provisions in their SEC filings. However, before the deadline for the SEC's decision, these companies amended their filings to remove any reference to gambling.
While there has been no further comment from ETF issuers, these deletions were likely in response to the SEC's stance that staking services could be viewed as unregistered securities offerings.
Historically, the SEC has demonstrated a cautious approach to betting services.
For example, the SEC alleged that Kraken's staking program, where users deposit crypto assets to stake and earn rewards, was an unregistered securities offering that violated U.S. securities laws. The lawsuit ended the deal. of Kraken for $30 million with the SEC. The company subsequently discontinued its staking service for U.S. retail customers.
Another case is the SEC's lawsuit against Coinbase in June 2023. The agency also alleged that Coinbase's retail staking services were securities.
Why is Ethereum ETF approval important?
The SEC's green light for Ethereum spot ETFs hints at, but does not definitively confirm, its stance on the underlying asset, Ethereum (ETH).
Rumors have circulated that the SEC considers most cryptocurrencies, except Bitcoin, to be unregistered securities. This is consistent with statements by SEC Chairman Gary Gensler. However, the recent approval of the ETF offers a possible counterpoint.
Coinbase Chief Legal Officer Paul Grewal and Jake Chervinsky, Variant's Chief Legal Officer, interpret the recent approval as an implicit nod to ETH's status as a commodity, given that the ETF's shares are based on a commodity.
“This week, this day, has been a roller coaster like no other I have ever seen. ETH is effectively considered a commodity as we have always known it,” Grewal. fixed.
“…it is clear: “commodity-based trust shares”, Chervinsky noted.
Why might delegated authority not matter?
Approval of Ethereum spot ETFs was issued through a delegated authority, eliminating the need for public commissioner votes. This agreement raises concern because it gives any commissioner the technical right to challenge and request a review of the decision.
However, Bloomberg ETF analyst James Seyffart said a review request would likely not alter the outcome.
According to him, SEC commissioners would not allow the Trading and Markets division to issue such approval unless a majority of them supported the decision. This consensus among commissioners suggests strong fundamental agreement on approval.
I say “wouldn't change anything” because the SEC commissioners would not have allowed the Division of Trading and Markets to draft/issue this approval order via delegated authority unless a plurality of commissioners agreed with that decision.
-James Seyffart (@JSeyff) May 23, 2024
In essence, the approval of Ethereum spot ETFs under delegated authority indicates that the launch of these ETFs is imminent.
The possibility of enforcement actions against entities linked to Ethereum
The recent approval of Ethereum spot ETFs was a welcome surprise, especially given the SEC's alleged legal threats against Ethereum-associated entities like the Ethereum Foundation and Consensys.
The agency had reportedly started a campaign to classify Ethereum (ETH) as a security, a move that many believed would undermine the prospects of approving Ethereum-based ETFs.
This context, combined with a lack of commitment reported by internal people and in general pessimistic outlook of ETF issuers and experts, made the favorable decision on May 23 especially unexpected.
Experts had speculated that the SEC was reluctant to approve ETH-linked ETFs because it wanted to classify the crypto as a security. However, the prevailing political climate in the United States appears to have influenced the SEC to modify its stance and approve these ETFs.
However, this approval does not mean that the entities involved are completely free of liability. The SEC could still treat the sale of ETH tokens during the 2014 Ethereum ICO as an “investment contract.”
If this is the case, it likely reflects the legal lawsuit between Ripple and the SEC, in which the SEC alleged that the sale of XRP between 2013 and 2020 represented an “investment contract.”
According to a court ruling last year, XRP sales on the secondary market did not constitute an “investment contract” but institutional sales were considered unregistered offerings and sales of investment contracts under the Howey test.
Aside from these possibilities, in a less likely scenario, the SEC might not intend to sue the entities.
Recent legal threats, including one directed at Uniswap, could be a strategy to intimidate or pressure crypto companies, rather than a genuine reflection of wrongdoing. This opinion was previously supported by Chervinsky.
The SEC just sent a notice from Wells to Robinhood.
The amount they have sent on cryptocurrencies in the last few months is staggering. It is difficult to imagine that they could (or could) initiate so many coercive actions at once.
It appears they are now abusing the Wells process as a scare tactic.
– Jake Chervinsky (@jchervinsky) May 6, 2024
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