SEC may let Ethereum spot ETFs happen, but not with staked ETH: Galaxy Digital Head of Research

The
US
Securities
and
Exchange
Commission
(SEC)
may
greenlight
spot
Ethereum
exchange-traded
funds
(ETFs)
that
do
not
include
the
staking
feature,
suggests
Alex
Thorn,
Head
of
Research
at
Galaxy
Digital.
He
believes
the
SEC
would
distinguish
Ethereum
(ETH)
and
staked
ETH
in
the
approval
process.

“If
the
speculation
about
a
180
from
SEC
on
the
Ethereum
ETFs
is
true,
I
would
guess
they
try
to
thread
a
needle
between
“ETH”
NOT
being
a
security
and
“staked
ETH”
(or
even
more
flimsily,
“staking
as
a
service
ETH”)
as
BEING
a
security,”
he

stated.

According
to
Thorn,
by
setting
clear
boundaries
between
ETH
and
staked
ETH,
the
SEC
could
approve
spot
Ethereum
ETFs
without
contradicting
its
past
actions,
including
the
alleged
investigation
into
the
Ethereum
Foundation
and
entities
associated
with
Ethereum,
like
Consensys.

“In
this
case
and
perhaps
for
other
reasons,
you
would
expect
[the]
SEC
to
prohibit
the
ETFs
from
staking
the
ETH
they
hold,”
he
added.

Recent
comments
from
Bloomberg
ETF
analysts
James
Seyffart
and
Eric
Balchunas
have
fueled
the
conversation
around
the
SEC’s
potential
shift
in
stance.

The
two
analysts
said
on
Monday
that
the
odds
for
a
spot
Ethereum
ETF
approval
had

increased
to
75%.
Balchunas
noted
that
the
key
factor
appears
to
be
a
“political
issue.”

Commenting
on
a
post
by
Scott
Johnsson,
Van
Buren
Capital’s
general
partner,
regarding
the
matter,
Bloomberg
ETF
analyst
James
Seyffart

suggested
that
the
removal
of
staking
could
be
the
deciding
factor.

The
SEC’s
decision
on
VanEck’s
spot
Ethereum
ETF
is
expected
by
May
23,
and
the
ARK21
Shares
Ethereum
ETF’s
deadline
follows
on
May
24.

Middle
ground

Apart
from
the
latest
development,
exchanges
seeking
to
list
and
trade
shares
of
spot
Ethereum
ETFs
have
reportedly
been
asked
to

revise
their
19b-4
filings.
This
suggests
another
scenario:
the
SEC
may
approve
19b-4s
for
spot
Ethereum
ETF
but
delay
S-1
applications.

For
an
ETF
to
be
approved
and
begin
trading,
the
issuer
needs
the
SEC
to
approve
two
applications:
a
19b-4
application,
which
grants
regulatory
approval
for
its
listing,
and
an
S-1
application,
which
lets
the
ETFs
launch
and
operate
fully.

In
short,
while
a
19b-4
might
be
technically
approved
without
an
S-1,
the
ETF
would
not
be
operable
without
an
S-1’s
approval.
Trading
on
the
spot
Bitcoin
ETFs
began
just
a
few
days
after
both
applications
were
approved
around
the
same
time.

The
SEC
may
want
to
avoid
backlash
from
the
crypto
community,
but
it
may
not
be
comfortable
allowing
spot
Ethereum
ETFs
on
the
market
just
yet.

To
achieve
this
middle
ground,
the
SEC
may
consider
approving
the
19b-4
for
the
general
product
but
delaying
the
approval
of
any
specific
S-1
applications
from
issuers.
This
approach
would
let
the
agency
effectively
stall
the
launch
of
specific
Ethereum
ETFs
until
further
scrutiny.

The
SEC’s
consideration
of
spot
Ethereum
ETFs
will
occur
amid
intensifying
regulatory
scrutiny
of
crypto
in
the
US.

Crypto
has
increasingly
become
a
political
flashpoint
between
the
two
parties
that
dominate
American
politics.
There
have
been
signs
that
Democrats
are
leaning
more
toward
tightening
enforcement,
though
not
all
Democrats
are
against
crypto.
Last
Thursday,
21
Democrats

joined
Republicans
in
voting
for

a
resolution
to
overturn
the
SEC’s
Staff
Accounting
Bulletin
No.
121
(SAB
121).

Under
the
leadership
of
the
Biden
administration,
the
US
has
been
known
for
its
regulatory
crackdown
on
the
industry.
The
US
SEC
makes
itself
an
example
of
this
skeptical
approach.
The
federal
agency’s
legal
actions
against
crypto
entities
have
been
an
ongoing
topic
of
discussion
over
the
past
few
years.