Rumors that the SEC is asking applicants to update filings and telling exchanges it’s leaning to approve the rule change has sent ETH flying.
Ethereum exchange-traded funds (ETFs) applicants have sprung into a flurry of activity as a major deadline towards the funds’ approval nears.
The U.S. Securities and Exchange Commission (SEC) on Monday reportedly directed major exchanges, including Nasdaq and CBOE, to refine their applications for listing spot Ether ETFs, indicating that the agency may be preparing to approve these applications.
Barron’s reported, citing sources familiar with the matter, that SEC staff informed exchanges on Monday it is leaning toward approving the products. The agency provided feedback on the applications, and if the issues are resolved promptly, approvals could be granted as early as this week, Barron’s reported.
Financial asset management giant Fidelity filed an amended S-1 application on Monday, stating that ETH tokens underlying their spot ETFs will not be staked. Crypto asset manager Grayscale also filed an updated 19b-4 for their Ethereum Mini Trust, a spin-off of the Grayscale Ethereum Trust (ETHE), which aims to convert the trust into a spot Ethereum ETF.
This flurry of activity prompted Bloomberg Intelligence analysts to increase their odds that the SEC will approve the spot Ethereum ETFs by the May 23 deadline to 75%. The move prompted a massive rally in Ethereum’s native token, as a spot ETF traded in U.S. markets could potentially drive billions in inflows from institutional investors, as has been the case after the spot Bitcoin ETF was approved.
ETH is up 19% in the past 24 hours to $3,733, the highest since March and just 23% away from its all-time high of $4,878, according to CoinGecko.
This week, the SEC will review the applications filed by CBOE for Ether ETFs from VanEck and ARK Investments/21Shares. However, approval of the 19b-4 filings does not guarantee that the ETFs will be authorized. The S-1 applications must also be approved before the products can begin trading. If both the 19b-4 forms and the S-1 registration are approved, only then these funds can initiate trading.
Forms S-1 and 19b-4
The S-1, filed with the SEC, is a registration statement required for launching publicly traded securities products in the United States.
The Form 19b-4, on the other hand, is used to inform the SEC of a proposed rule change by a self-regulatory organization (SRO). This form requests the SEC to approve new types of financial products or changes to existing rules, in this case, the listing of Ethereum ETFs.
Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart increased their odds for the approval of a spot Ether ETF to 75% from 25% on Monday, following reports of a potentially more favorable stance by the SEC.
However, they later clarified that these odds were specific to the 19b-4 approvals.
Standard Chartered, a financial institution managing over $800 billion in assets, said in a report it anticipates that the SEC will approve spot Ether ETFs by May 24.
The list of ETF applicants awaiting SEC approval includes VanEck Ethereum ETF, ARK 21Shares Ethereum ETF, Hashdex Nasdaq Ethereum ETF, Grayscale Ethereum Futures Trust, Grayscale Ethereum Trust Conversion, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund, iShares Ethereum Trust, Franklin Ethereum ETF, and Bitwise Ethereum ETF.
Not So Easy
Should the SEC classify Ethereum as a security, it may result in the rejection of the spot Ether ETF applications because, according to securities regulations, any asset classified as a security must comply with strict requirements, including registration and disclosure obligations.
A securities classification could impose significant legal and operational challenges on entities looking to offer financial products based on Ethereum.
In the past, SEC Chair Gary Gensler has refrained from explicitly stating whether ETH is a security.
Notably, the SEC does not prescribe a specific timeline for decisions on ETF applications, which could be a cause in the delay in the approval of spot Ether ETFs.
Under Gensler’s leadership, the SEC declined several spot Bitcoin ETF applications due to concerns about market manipulation.
Despite these rejections, the SEC was compelled to approve Bitcoin ETF products following a successful court challenge by Grayscale Investments.
Approval of the spot Ether ETFs would be a regulatory milestone and could pave the way for more cryptocurrency-related financial products.
Still, Gensler said in a Jan. 10 statement that the Bitcoin ETF approval should “in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.”
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