Ether ETFs Edge Closer to Approval in the US

Updated May 28, 2024 4 min read

Ether ETFs Edge Closer to Approval in the US

Ether ETFs Edge Closer to Approval in the US

Ether ETFs Edge Closer to Approval in the US

Ether ETFs are inching closer to approval in the US, following the SEC's green light for proposals to list exchange-traded funds tied to the second-largest virtual asset by market capitalization. Spot Bitcoin ETFs were approved earlier this year and have seen massive inflows. The cryptocurrency industry is closely watching these developments in Ether ETFs, as they could have significant implications for the market and investor sentiment.

Regulatory Landscape and Industry Impact

On May 24, 2024, the SEC cleared the way for venues like the New York Stock Exchange, Nasdaq, and Cboe Global Markets to list Ether ETFs, pending further approvals for the fund managers themselves. This decision represents a substantial shift from expectations just a week prior when many anticipated the SEC would reject these proposals. This regulatory development mirrors the January approval of spot Bitcoin ETFs, which have since amassed $57 billion in assets, demonstrating significant investor demand.

The approval process for Ether ETFs still requires fund managers to receive separate approval from the SEC before launching their products. The timeline for these approvals remains uncertain. Industry observers are keenly watching to see if Ether ETFs can attract a similar level of interest as Bitcoin ETFs, which have seen substantial inflows since their debut.

Companies Applying for Ether ETFs

The recent approval of Ether ETFs by the U.S. Securities and Exchange Commission (SEC) has spurred significant activity among asset management firms seeking to launch these products. Several prominent companies have filed applications with the SEC, aiming to capture the burgeoning interest in cryptocurrency investments.

Key Applicants:

  1. BlackRock - Known for its substantial influence in the asset management industry, BlackRock has submitted a detailed application for a spot Ether ETF. The firm's involvement is seen as a strong endorsement of Ether as an investment vehicle. CEO Larry Fink has previously expressed bullish sentiment in virtual assets with the launch of a tokenized fund and a Bitcoin ETF.

  2. Grayscale Investments - Grayscale, a major player in the virtual asset space, has also applied to convert its existing Ethereum Trust into an ETF. This move is part of their broader strategy to offer regulated crypto investment products.

  3. Bitwise Asset Management - Bitwise has been proactive in the crypto ETF space, filing for both Bitcoin and Ether ETFs. Their application emphasizes providing investors with direct exposure to Ether's market performance.

  4. Fidelity Investments - A traditional finance giant, Fidelity has recently filed for a spot Ether ETF. Their entry into the Ether ETF race underscores the growing acceptance of virtual assets among mainstream financial institutions.

  5. VanEck - VanEck was one of the early applicants for both Bitcoin and Ether ETFs. Their continuous efforts highlight their commitment to expanding their crypto investment offerings.

  6. ARK Invest and 21Shares - This partnership combines ARK Invest's innovative approach with 21Shares' expertise in crypto ETPs. They have jointly filed for a spot Ether ETF, aiming to leverage their previous experience with Bitcoin ETFs.

  7. Invesco and Galaxy Digital - These firms have partnered to apply for a spot Ether ETF, with their combined expertise expected to create a compelling investment product. Their application is part of a broader push to introduce various crypto ETFs to the market.

  8. Franklin Templeton - Another traditional financial institution entering the crypto space, Franklin Templeton has filed for a spot Ether ETF, indicating a significant shift towards virtual asset investments.

  9. Kryptoin - This firm has also filed for an Ether ETF, adding to the competitive landscape of crypto-based investment products.

  10. Hashdex - While Hashdex has not yet amended its filing, it is expected to join the list of applicants soon, further intensifying the race for SEC approval.

The approval of these ETFs is anticipated to drive substantial institutional investment into Ethereum, potentially boosting its market value and increasing its mainstream adoption.

Related: Bitcoin ETFs by Fee

Market Reactions and Investor Sentiment

Following the SEC's decision, Ether experienced a brief market rally, with prices rising by 23% over the week, marking the digital coin's best performance since 2021. However, prices later dipped by 2% as investors appeared to reassess the immediate impact of the regulatory move and other economic factors.

Rich Rosenblum, president of GSR Markets Ltd., described the SEC's decision as a significant and surprising shift, noting it as one of the most remarkable reversals he has witnessed in over a decade of trading in the crypto space.

Concerns and Challenges

Despite the positive market response, there are notable concerns regarding the potential demand for Ether ETFs compared to Bitcoin ETFs. Lara Crigger from VettaFi pointed out that Ether, despite having more use cases, is a smaller market with lower general awareness and name recognition among investors compared to Bitcoin. This could potentially limit the inflow of investments into Ether ETFs.

The SEC's cautious stance towards the crypto industry persists, with ongoing concerns about market manipulation, fraud, and the broader implications for financial stability. The Commission's approval included extensive analysis of correlations between Ether spot markets and futures, emphasizing the need for robust surveillance to detect and mitigate trading anomalies.

Legislative Context and Broader Implications

The approval of Ether ETFs comes amid a broader context of evolving legislative and regulatory attitudes towards cryptocurrencies in the United States. Recently, the Republican-led House advanced comprehensive crypto legislation, despite resistance from the White House and SEC Chair Gary Gensler. While the Senate is not expected to pass the measure, it indicates a shift towards more structured regulatory frameworks for digital assets.

One critical aspect under scrutiny is the classification of Ether as a security. SEC Chair Gensler has been ambiguous on this matter, causing uncertainty among crypto enthusiasts and developers on the Ethereum blockchain. In contrast, the Commodity Futures Trading Commission (CFTC) has consistently treated Ether as a commodity, allowing CME Group to trade Ether futures for several years. The SEC's approval of Ether ETFs could be interpreted as tacit support for this classification, although this remains a contentious issue.

Market Outlook and Future Developments

As asset managers prepare to launch Ether ETFs, they are making strategic adjustments to comply with SEC regulations. For instance, Fidelity has announced that it will not engage in staking with the Ether held in its ETF, addressing SEC concerns that staking might classify Ether as a security.

The virtual asset industry, recovering from the market downturn and scandals of 2022, views the approval of Ether ETFs as a critical step towards mainstream acceptance and broader institutional investment. Stakeholders in the crypto and wealth management sectors have hailed the SEC's decision as a validation of virtual assets as a legitimate investment class.

Overall, the SEC's approval of Ether ETFs will be a big moment for the cryptocurrency market, opening new investment avenues and potentially setting the stage for further regulatory developments. The industry remains cautiously optimistic, balancing the excitement of new opportunities with the challenges of regulatory compliance and market acceptance.