Ethereum spot ETF approval is here – Everything you need to know
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Spot
Ethereum
ETFs
have
finally
received
the
greenlight
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
crypto.
This
article
will
provide
more
insights
into
the
recent
approval,
its
potential
motivation,
and
implications
for
the
industry.
An
overview
of
spot
Ethereum
ETF
approval
On
May
23,
the
US
Securities
and
Exchange
Commission
(SEC)
approved
the
19b-4
forms
associated
with
eight
spot
Ethereum
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
debut
of
spot
Bitcoin
ETFs
in
the
US
in
January.
However,
unlike
Bitcoin
ETFs,
the
Ethereum
products
still
need
S-1
form
approval
to
fully
operate,
which
is
pending
review
now.
As
reported
by
Crypto
Briefing,
the
securities
watchdog
recently
started
engaging
with
ETF
issuers
on
S-1
forms.
This
development
likewise
confirmed
some
previous
speculation
that
the
SEC
lacked
interaction
with
the
issuers
during
the
review
process.
Considering
previous
cases,
Bloomberg
ETF
analyst
James
Seyffart
estimates
that
it
may
take
the
SEC
up
to
five
months
to
clear
the
spot
Ethereum
funds
for
trading.
However,
the
analyst
suggests
that
the
timeline
can
be
extended.
Key
factors
influencing
approval
According
to
the
SEC’s
approval
document,
the
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
Bitwise’s
amendments
and
other
commenters,
including
the
Coinbase
Letter
and
CF
Benchmarks
Letters.
The
SEC’s
findings
confirmed
the
high
correlations
reported,
indicating
a
robust
linkage
between
the
CME
Ethereum
futures
and
spot
Ethereum
markets.
Other
considerations
addressed
in
the
approval
document
include
investor
protection,
market
integrity,
volatility,
and
risk
concerns.
However,
Jake
Chervinsky,
chief
legal
officer
at
Variant,
claimed
that
the
SEC
might
“explicitly
avoid
staking”
in
its
document.
There
have
been
ongoing
discussions
surrounding
the
SEC’s
stance
on
Ethereum’s
staking
feature.
Analysts
believe
that
the
removal
of
the
staking
component,
or
the
affirmation
of
no
staking
in
Ethereum
ETF
filings
is
as
important
as
other
key
factors
influencing
the
decision.
Major
firms
such
as
Fidelity
and
ARK
21Shares
initially
included
staking
provisions
in
their
filings
with
the
SEC.
However,
ahead
of
the
SEC’s
decision
deadline,
these
firms
amended
their
filings
to
eliminate
any
references
to
staking.
While
there
have
been
no
further
comments
from
the
ETF
issuers,
these
removals
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
staking
services.
For
instance,
the
SEC
alleged
that
Kraken’s
staking
program,
where
users
deposit
crypto
assets
to
stake
and
earn
rewards,
was
an
unregistered
securities
offering
in
violation
of
US
securities
laws.
The
lawsuit
ended
with
Kraken’s
$30
million
settlement
with
the
SEC.
The
firm
subsequently
discontinued
its
staking
service
for
US
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
does
Ethereum
ETF
approval
matter?
The
SEC’s
green
light
for
spot
Ethereum
ETFs
hints
at,
but
doesn’t
definitively
confirm,
their
stance
on
the
underlying
asset,
Ethereum
(ETH).
Rumors
have
swirled
that
the
SEC
considers
most
cryptos,
except
Bitcoin,
to
be
unregistered
securities.
This
aligns
with
statements
from
SEC
Chair
Gary
Gensler.
However,
the
recent
ETF
approval
offers
a
potential
counterpoint.
Coinbase’s
chief
legal
officer,
Paul
Grewal,
and
Jake
Chervinsky,
chief
legal
officer
at
Variant,
interpret
the
recent
approval
as
an
implicit
nod
to
ETH’s
status
as
a
commodity,
given
that
the
ETF
shares
are
based
on
a
commodity.
“This
week,
this
day,
has
been
a
rollercoaster
unlike
any
other
I’ve
seen.
ETH
is
effectively
deemed
a
Commodity
as
we’ve
always
known
it
to
be,”
Grewal
stated.
“…it’s
clear:
“commodity-based
trust
shares,”
Chervinsky
noted.
Why
might
delegated
authority
not
matter?
The
approval
of
the
spot
Ethereum
ETFs
was
issued
via
delegated
authority,
which
eliminates
the
need
for
public
commissioner
votes.
This
arrangement
raises
concerns
because
it
allows
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,
the
SEC
commissioners
would
not
permit
the
Trading
and
Markets
division
to
issue
such
an
approval
unless
a
majority
of
them
supported
the
decision.
This
consensus
among
the
commissioners
suggests
a
strong
foundational
agreement
on
the
approval.
I
say “it
wouldn’t
change
anything”
because
the
SEC
commissioners
would
not
have
allowed
Trading
and
Markets
division
to
write/issue
this
approval
order
via
delegated
authority
unless
a
plurality
of
the
commissioners
agreed
on
that
decision—
James
Seyffart
(@JSeyff)
May
23,
2024
In
essence,
the
approval
of
spot
Ethereum
ETFs
under
delegated
authority
indicates
that
the
launch
of
these
ETFs
is
imminent.
The
possibility
of
enforcement
action
against
Ethereum-linked
entities
The
recent
approval
of
spot
Ethereum
ETFs
came
as
a
welcome
surprise,
especially
given
the
SEC’s
alleged
legal
threats
against
Ethereum-associated
entities
such
as
the
Ethereum
Foundation
and
Consensys.
The
agency
had
reportedly
initiated
a
campaign
to
classify
Ethereum
(ETH)
as
a
security—a
move
many
believed
would
undermine
the
prospects
for
approving
Ethereum-based
ETFs.
This
backdrop,
combined
with
a
lack
of
engagement
reported
by
insiders
and
a
generally
pessimistic
outlook
from
ETF
issuers
and
experts,
made
the
favorable
decision
on
May
23
particularly
unexpected.
Experts
had
speculated
that
the
SEC
was
reluctant
to
approve
ETFs
tied
to
ETH
because
it
wanted
to
classify
the
crypto
as
a
security.
However,
the
prevailing
political
climate
in
the
US
appears
to
have
influenced
the
SEC
to
alter
its
stance
and
approve
these
ETFs.
Nevertheless,
this
approval
does
not
mean
that
the
entities
involved
are
completely
off
the
hook.
The
SEC
might
still
treat
the
sale
of
ETH
tokens
during
Ethereum’s
2014
ICO
as
an
“investment
contract.”
If
this
is
the
case,
it
likely
reflects
the
Ripple-SEC
legal
lawsuit,
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
the
institutional
sales
were
deemed
unregistered
offers
and
sales
of
investment
contracts
under
the
Howey
test.
Apart
from
these
possibilities,
in
a
less
likely
scenario,
the
SEC
might
not
intend
to
sue
the
entities.
The
recent
legal
threats,
including
one
targeting
Uniswap,
might
be
a
strategy
to
intimidate
or
pressure
crypto
companies,
rather
than
a
genuine
reflection
of
wrongdoing.
This
view
was
previously
supported
by
Chervinsky.
The
SEC
just
sent
a
Wells
notice
to
Robinhood.The
number
they’ve
sent
about
crypto
in
recent
months
is
astonishing.
It’s
hard
to
imagine
that
they
would
(or
could)
bring
so
many
enforcement
actions
at
once.It
seems
like
they’re
abusing
the
Wells
process
as
a
scare
tactic
now.—
Jake
Chervinsky
(@jchervinsky)
May
6,
2024
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