There’s nothing wrong with a refresher course as industry professionals try to decipher the changing bullish signals surrounding possible spot-ether ETF approval.
Securities and Exchange Commission will rule by Thursday on these products. You’re still with me?
Amended filings indicate that prospective ether ETF issuers would not stake the ETH they hold — a fund feature that segment observers long predicted the SEC to oppose.
The SEC refused to comment.
Analysts expect the SEC to decide on so-called 19b-4s — proposed rule changes filed by exchanges on behalf of the issuers — before weighing in on S-1 registration statements for each of the planned funds. The two steps could take longer than expected, but both are necessary for products to be launched.
Accelerating your movement
Bloomberg analysts raised their SEC approval odds from 25% to 70% yesterday.
David Han from Coinbase Research had suggested last week, that the market could be volatile. “underestimating the timing and odds” Approval of US ETH funds
Blockworks was informed by a source that the issue is indeed a concern. “Conversations are progressing.”
The SEC has reportedly requested that the exchanges listing spot ether ETFs update their documents 19b-4. SEC employees told the exchanges that they were leaning in favor of approving products on Monday, Barron’s reports, citing “people familiar with the matter.”
Jon Ammons told Blockworks, Reed Smith’s partner for the on-chain crypto-and-digital asset group that, when an issue is raised late in a process, the SEC will sometimes request 11th-hour changes.
“But I would say it is rare for them to sit on a known issue and then ask for changes at the last minute,” He added.
Recent political events could have influenced the SEC to change its mind. This is just months before the presidential elections. Galaxy CEO Mike Novogratz last week said that Democrats will likely feel more pressure now, as Donald Trump, the former president of the United States, has pledged to support cryptography.
The resolution was passed by 12 Democratic senators and Republicans together last week. It sought to repeal the Staff Accounting Bulletin of SEC (SAB 121).
Rashan Collbert, the director of dYdX Trading’s policy department, expects the House this week to maintain the momentum and pass the Financial Innovation and Technology for the 21st Century Act by a large bipartisan margin.
There’s also this sudden change of heart from the SEC.
“Those who’ve been deeply involved in crypto policy, who attempt to think about them from first principles, realize that these are not fundamentally partisan issues,” Colbert tells Blockworks. “Some are attempting to make them so, but they’re not.”
Remove staking language from issuers
Fidelity Investments updated the S-1 or registration statement of its Fidelity Ethereum Fund, on Tuesday.
In the filing, the company indicated that it would not be staking the Ether held by the firm. Staking ether is the process of depositing ETH to help secure the Ethereum blockchain — and earning yield on that ETH for doing so.
Fidelity’s change came after Ark Invest & 21Shares, who had proposed previously for their intended fund that the fund’s ETH be staked, removed such language as well in a 10 May filing.
Oh yes, on behalf of Grayscale and its Ethereum Mini-Trust, NYSE Arca submitted a form 19b-4 to the SEC on Tuesday.
“Neither the trust, nor the sponsor, nor the custodian, nor any other person associated with the trust will, directly or indirectly, engage in action where any portion of the trust’s ether becomes subject to Ethereum proof-of-stake validation or is used to earn additional ether or generate income or other earnings,” The document says.
The SEC is expected to rule on 19b-4 amendments and S-1 before the SEC.
Sumit Roy told Blockworks, a leading analyst from ETF.com in March, that the SEC was unlikely to allow potential ether ETFs staking their holdings.
“Staking is a feature that makes ether and other proof-of-stake cryptocurrencies more like securities, which the SEC won’t look favorably upon,” Roy made the observation at that point.
What is this all about?
Han, a Coinbase employee, attempted to explain in a post on Monday X the SEC’s lack of interaction with potential ether ETF issues.
While staking would have made ether ETFs different than the already-approved bitcoin ETFs, he noted many details — like custodian responsibilities, net asset value calculation and benchmark rates, for example — are similar to those for the BTC funds.
“If there’s no staking, it’s not clear to me why spot ETH ETFs would be mechanically different from spot BTC ETFs,” Han added. “Hence, the relative silence on S-1 communication isn’t particularly surprising to me, since it’s not clear what would need updating.”
21Shares co-founder made a similar argument in a March interview with Blockworks co-founder Jason Yanowitz — pointing out the similarities between the approved bitcoin products and the ether ETF proposals.
“They’re the same structure, the same custodians, the same disclosures,” Snyder at the time. “It’s very internally consistent. That means there’s less to look at.”
SEC can still reject the applications for spot ether exchange-traded funds, especially given its historical reluctance to categorize ETH as a financial instrument or commodity.
“The SEC could therefore say that ETH ETPs should not be Commodity-Based Trust Shares,” Ammons said. “But this would likely ignite the jurisdictional tug-of-war between the SEC and CFTC over the classification of ether.”
SEC Chair Gary Gensler said in a Jan. 10 statement — the day the agency approved US spot bitcoin ETFs — that the decision was “cabined to ETPs holding one non-security commodity, bitcoin.”
Jake Chervinsky is the chief legal officer of crypto fund Variant. He noted that if SEC approves spot ether exchange traded funds, it would mean admitting that unstaked Ethereum does not qualify as a security.
“That would be a major policy move from a commission that has consistently refused to acknowledge any asset other than BTC as a non-security commodity,” He wrote about X. “Have we earned it?”
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