SEC approves rule change to allow creation of ether ETFs

Illustration of Ethereum cryptocurrency placed on a PC motherboard in this illustration taken on June 16, 2023.

Dado Ruvic | Reuters

The SEC passed a rule change on Thursday that will pave the way for buy-and-hold ETFs etherone of the world’s largest cryptocurrencies.

The decision comes less than six months after the Securities and Exchange Commission Bitcoin ETF approved. According to FactSet, these funds have proven to be a huge success for the industry, with net capital inflows exceeding $12 billion.

The end of May has long been seen as a potential decision date for ether funds as it coincides with the deadline for the SEC to decide whether the VanEck Ethereum ETF can proceed.

Many companies sponsoring bitcoin ETFs – including BlackRock, Bitwise and Galaxy Digital – have also begun the process of launching ether funds.

The price of ether only increased by 2%, although it followed suit sudden increase of 20% from the beginning of the week waiting for a decision on Thursday. Some investors may also take pause because approval of the SEC’s rule change does not guarantee that all funds will hit the market.

Specifically, the SEC’s order Approval of application from different exchanges to list eight different ether funds. Technically, the order does not approve the funds themselves or set a date for the ETFs to begin trading.

Ether ETFs are expected to be smaller, at least initially, than their bitcoin counterparts. Grayscale Ethereum Trust currently has assets of about $11 billion, much smaller than the company’s bitcoin fund before the conversion.

The approval of ether ETFs is a sign that the SEC’s stance on cryptocurrencies may be softening after a series of legal battles. Organ lost the case against Grayscale in 2023 spurred approval for bitcoin products.

The SEC’s efforts to regulate cryptocurrencies have also come under scrutiny from politicians. The Senate last week passed a resolution withdrawing the SEC staff bulletin on accounting rules for digital assets.

Ether is the second largest crypto asset and has become a blue chip coin alongside bitcoin, although its value proposition is clearly different. While bitcoin seen primarily as a long-term store of value, an investment in ether is treated much like an investment in early-stage technology. Ether tokens power the Ethereum network, supporting various applications, such as decentralized finance (DeFi) projects, non-fungible tokens (NFTs), or the tokenization of assets in real world like commodities, stocks, art, real estate, etc

Richard Kerr, a partner at law firm K&L Gates, said the applications approved Thursday do not apply to other cryptocurrency projects on the Ethereum network.

“If and when an Ether product is approved, it does not mean that a similar product for other digital assets on the Ethereum platform will be approved,” Kerr said.

Ethereum also offers staking opportunities, which are a way for investors to earn interest on their ether holdings by locking up tokens on the network for a period of time – although ether ETFs in the US have may not participate. The SEC has alleged in lawsuits against Coinbase and Kraken that staking-as-a-services are unregistered securities. Ark, Fidelity and Grayscale updated their filings this month to remove staking from their offerings.

Steven Lubka, managing director at Swan Bitcoin and head of Swan Private, said the lack of stakes in ETF products is another reason why ether ETFs may see less demand than their counterparts. their bitcoins.

“These numbers would not be consistent with bitcoin ETF inflows, and there are some structural differences in the product that make it less attractive overall,” Lubka said.


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