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Here we go again... The U.S. Securities and Exchange Commission (SEC) is not giving approval to two proposed spot Ethereum (ETH) exchange-traded funds (ETFs) anytime soon.
This decision is not surprising to say the least, especially with the regulator taking its sweet time with everything ETF-related – whether Bitcoin ETFs that launched earlier this year, or upcoming ETH ETFs...
In another news, Australia’s largest stock exchange could list approved spot bitcoin ETFs by end of 2024 highlighting the key contrast between the two count – highlighting the key contrast between the two countries on the issue.
As far as ether ETFs are concerned, the news is grim. Grayscale Investments, the world's largest crypto and asset manager, withdrew its application for the said ETF on May 3rd.
The SEC has extended the time period for approving or disapproving the ether ETFs, proposed by Franklin Templeton and Grayscale, to 11 June and 23 June.
The securities regulator is looking to designate a longer period where it has sufficient time to consider the proposed rule change and the issues raised therein.
The regulator could then approve or disapprove or institute proceedings regarding these two ETFs.
Franklin Templeton’s ether ETF would generally reflect the price of ETH and Coinbase Custody Trust Company and the Bank of New York Mellon would be the custodians.
Good to Read: SEC Quells Down ETH ETF Amidst Bullrun
Grayscale has already filed to convert its Grayscale Bitcoin (BTC) trust to a spot BTC ETF but only after a court victory.
The regulator has already extended decisions on the applications for ether ETFs proposed by VanEck and BlackRock.
It was in January 2024 that the SEC approved 11 spot bitcoin ETFs, including those by BlackRock, Vanguard, Franklin Templeton, Fidelity and Invesco.
The event marked a significant step in the journey towards the fusion of traditional finance (TradFi) and decentralised finance (DeFi).
Since then, we have seen Hong Kong officially approve spot Bitcoin and Ether ETFs.
Recommended Read: Hong Kong Officially Approves Spot Bitcoin and Ether ETFs
The asset segment gives even traditionally wary traders an opportunity to invest in cryptocurrency without having to deal with the intricacies of DeFi.
It also makes way for a lower entry barrier for traders in terms of investment which, in turn, spurs a larger influx of institutional and retail investors into the cryptocurrency economy.
In essence, crypto ETFs underline the growing acceptance of cryptocurrency within the larger financial ecosystem. We can also see an increase in an influx of capital into the market; consequently, we can expect increased liquidity, price stability, and diversification opportunities in the long run.
As far as the SEC is concerned, its combative stance against crypto is no news. The approach is, though, not without any foundation.
We witnessed the global crypto industry collapse in the face of numerous bankruptcies and scams such as Terraform Labs, FTX etc. over the last 2-3 years.
While Terraform Labs’ Do Kwon will potentially be imposed a penalty of $5.3 billion, FTX’s Samuel Bankman-Fried “SBF” has been sentenced to 25 years in jail.
Amidst such circumstances, the SEC chose to take a rather tough stand regarding the proliferation of crypto assets in the U.S. market.
At first, the regulating body sued Ripple Labs and its executives in December 2020 for offering unregistered securities in the form of cryptocurrency in the U.S. The court later delivered a judgement that both the SEC and Ripple (XRP) celebrated as it was counted as a 50/50 judgement.
The court ruled last year that while the institutional sales of XRP tokens constituted a sale of unregistered securities, the retail sale of those tokens didn’t violate any law.
For context: In July 2022, the agency charged former Coinbase (COIN) executives with participating in a $1.1 million insider trading scam.
The agency sued Coinbase and Binance (BNB) in June last year for offering unregistered securities in the form of cryptocurrency in the U.S.
Both the cases are still going on, with a tug of war going on between the securities regulator and the crypto exchanges.
Many other exchanges have also been facing the ire of the SEC.
The SEC Commissioner Gary Gensler has assumed the position that every cryptocurrency except Bitcoin (BTC) is a security. The regulator is arguing the same in the court too.
So far, what we have understood is that the institutional sale of crypto tokens is a violation of law as it constitutes the sale of unregistered securities.
However, the anticipation around the approval of spot Bitcoin ETFs in the U.S. led to a significant price rally in the crypto market, beginning late October 2023.
As the SEC finally approved 11 spot bitcoin ETFs in January 2024, the crypto market further rallied. As far as the proposed spot ether ETFs are concerned, there is a negative outlook among some commentators.
Eleanor Terrett, a Fox Business journalist, opined,
“As has been widely reported, the consensus is that because there has been little to no meaningful engagement from SEC staff on the issuers’ applications, that they will ultimately deny on May 23rd... My takeaway: There’s a mixed bag of sentiment from issuers, still leaning more towards the pessimistic side one month out from May 23rd.”
But we would rather wait for the SEC to make the final call before pronouncing any judgement.
Meanwhile, Ethereum developer and blockchain company Consensys recently sued the SEC for the federal regulator’s “unlawful seizure of authority” over Ethereum.
Ironic, huh?
The blockchain firm is seeking from the court the confirmation that the SEC doesn’t have any legal authority to regulate the user-controlled software interfaces built on the Ethereum blockchain.
The firm received a Wells notice from the regulator early this month in regard to the violation of securities laws via its MetaMask wallet product.
This is considered to be a significant development, given that the SEC is overseeing the applications of spot Ethereum ETFs.
As per a recent Bloomberg report, Australian Securities Exchange is expected to issue its first approved batch of spot Bitcoin ETFs by the end of 2024.
Global firms such as VanEck and local firms BetaShares and DigitalX submitted their ETF applications to the Exchange earlier this year.
So far, there are only two spot crypto ETFs, Global X 21Shares Bitcoin and Ethereum ETFs, that traders in Australia can access. These two ETFs are available on listed on CBOE Australia.
We can very well see how the battle over crypto ETFs is raging in different parts of the world. We will be keeping a close watch on the upcoming developments in the field.
In September 2023, NYSE Arca, Inc. had filed with the SEC a proposed rule change to list and trade shares of the Grayscale Ethereum Futures Trust ETF.
However, Grayscale withdrew its application on May 3rd as the SEC kept delaying its decision regarding approving or rejecting its ether futures ETF application.
If pursued and approved on May 30th, the ETF would have been listed on the New York Stock Exchange and tracked ether futures contracts on the Chicago Mercantile Exchange (CME).
As a matter of fact, it was Grayscale that battled the SEC in the court to convert its Bitcoin Trust to an ETF. In January 2024, the regulator had approved 11 spot Bitcoin ETFs to be listed on the stock market.
Analysts believe that Grayscale's futures ether ETF was a "trojan horse" to pressurise the SEC into approving its spot ether ETF.
Meanwhile, Ark Invest and 21Shares removed the staking feature from their joint ether ETF application.
It seems rather difficult for Ethereum ETFs to get approval as the SEC is now speculating whether ETH is a security or not.
Read More: Ethereum Under SEC's Lens
In addition, the U.S. presidential election is expected to take place after a few months this year.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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3min
Oct 29, 2024
Crypto
