It is not surprising that the SEC is not showing interest in the ether (ETH) exchange-traded fund (ETF) trend. Yesterday, the agency rejected BlackRock’s ETH ETF proposal, which was filed in November, following the asset manager’s surprising decision to proceed with a spot bitcoin fund.
The Reason for Refusal Is the Need to Assess All Risks in Detail
“The Commission deems it necessary to extend the timeframe for taking action on the suggested rule change in order to thoroughly evaluate the proposal and the concerns presented,” as stated in the SEC’s report. Last week, the Fidelity Ethereum Fund was also delayed using almost the same language.
This was the expected outcome, according to market analysts. In a recent report, an analyst from JP Morgan (JPM) stated that the chances of the SEC accepting an ETF based on ETH by May are at most 50%. The experienced ETF expert at Bloomberg, James Seyffart, expects that there will be occasional delays for spot ether ETF suggestions in the coming months.
Which Actions Are Required in Order to Start an Ethereum Exchange-Traded Fund (ETF)?
When compared to the situation that occurred with bitcoin exchange-traded funds (ETFs), which were recently approved by the SEC after significant delays, the current position looks to be more complicated. Concerned about the possibility of market manipulation, the Securities and Exchange Commission (SEC) has been hesitant to provide approval for bitcoin funds for many years.
BlackRock, a prominent ETF issuer and significant asset manager, took the initiative to develop a trade monitoring protocol to address concerns. Additionally, the 11 ETF issuers made substantial concessions to the regulator, such as opting for cash settlements instead of bitcoin, in their efforts to obtain approval.
In the end, it was Grayscale’s success in court that pushed Gary Gensler, Chairman of the Securities and Exchange Commission, to give his permission to the financial instruments that were based on Bitcoin. A member of the appeals court voiced significant criticism of the erroneous rationale that the agency used in the past to provide permission to exchange-traded funds (ETFs) that were based on futures but not those that were based on spot pricing. As a result of the judge’s order, the agency was required to reevaluate the standards it uses to list these kinds of funds.
It is encouraging to see that ETH futures ETFs have already been launched. Nevertheless, in his official announcement, Gensler made it clear that the approval of bitcoin ETFs does not indicate the Commission’s readiness to approve listing requirements for digital currency securities.
SEC Commissioner Hester Peirce, a highly regarded U.S. regulator in the crypto space, mentioned in a recent interview with Coinage that the SEC is not inclined to pursue legal action regarding ETH ETFs. She emphasized the importance of considering past rulings when making decisions. Peirce frequently diverges from her commission colleagues, openly expressing her concerns about the agency’s numerous legal challenges toward crypto firms and projects.
In a strongly worded public statement, Peirce expressed her disappointment with the agency’s handling of the Bitcoin ETF announcement. She criticized the agency for missing numerous opportunities over the past decade and described the situation as an unnecessary but significant ordeal. Peirce also highlighted the negative impact on investors, noting that it has led retail investors to seek alternative, less efficient methods of investing in Bitcoin.
Peirce Makes Very Cautious Predictions of ETF’s
Peirce now indicates that the SEC and Gensler have learned from past experiences and are unlikely to change their criteria for Bitcoin ETF applicants. However, she remains cautious about making predictions regarding the fate of any specific cryptocurrency product.
Bitcoin had a more substantial chance of being approved due to its classification as a commodity, which regulators uniformly recognize. In contrast to previous regulators’ statements about Ethereum’s decentralization, Gensler has expressed concerns about ETH, especially following the network’s transition to a staking mechanism.
According to Nikolaos Panigirtzoglou, an analyst at JP Morgan, the measures that the SEC is now pending regarding digital currency exchanges that offer staking services on proof-of-stake blockchains, such as Ethereum, constitute a substantial obstacle to the establishment of a spot ether exchange-traded fund (ETF). The outcome of this litigation will likely be the determining factor in determining the future possibilities of such an approval.
Panigirtzoglou also brought out the fact that the Securities and Exchange Commission (SEC) has not directly mentioned Ethereum (ETH) in any of the legal proceedings that it has taken against cryptocurrency exchanges for breaking securities regulations. The fact that this is the case signals that the SEC could think about designating ETH as a commodity.
In addition, if the Securities and Exchange Commission (SEC) becomes involved in a dispute about exchange-traded funds (ETFs) for Ethereum, it may be necessary for it to address the Commodity Futures Trading Commission (CFTC), a regulatory agency with overlapping authority over ETH.
Considering the current landscape, it appears highly likely that ETH ETFs will become a reality. However, it is essential to acknowledge that numerous challenges lie ahead.
Despite the SEC’s decision to delay, the current situation could benefit ETH in the long run, as it prevents U.S. consumers from accessing a secure and tax-advantaged method of investing in the second-largest cryptocurrency.
Although Parliament failed to give us the ability to inform folks whether or not a particular investment is good for them, she claimed that we have exploited bureaucratic processes in order to conceal investments that we do not approve of from the general public. This is despite the fact that we have yet to be given the authority to do so.