Ether ETFs Gain SEC Approval: Battle Won but War Unfinished

Against all odds, naysayers, and rejection rumours, the United States (US) Securities and Exchange Commission (SEC) approved eight multiple spot Ethereum ETFs through an omnibus order, marking a significant milestone for the crypto industry and the second-largest cryptocurrency.

This approval follows the recent green light in January for spot Bitcoin ETFs, which is a positive development for investment products in the digital assets space in the US.

Green Light Given to Eight Spot Ether ETFs but Trading Cannot Commence Yet

As shown in a 23 May filing, the SEC approved the 19b-4 applications from VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy, and Bitwise, allowing for the listing and trading of spot Ether ETFs on their respective exchanges.

These ETFs are poised to be listed on three major national exchanges: CBOE, NYSE ARCA, and NASDAQ, expanding Ethereum's accessibility to a wider range of investors.

However, the only ETF issuer that did not receive regulatory approval on the day, was Hashdex.

Despite this approval, ETF issuers still require the SEC's approval of their S-1 registration statements before the spot Ether ETFs can officially begin trading.

Industry analysts predict that this process could take anywhere from days to months.

Bloomberg ETF analyst James Seyffart noted that historically, this process has taken over three months.

Bloomberg ETF analyst Eric Balchunas responded that it might launch as soon as mid-June, should the US securities regulator adhere to a comparable timeline as observed with spot Bitcoin ETFs.

Balchunas anticipates a single round of comments on the S-1 amendments, mirroring the SEC's approach with spot Bitcoin ETF applicants.

Based on past timelines, this feedback process lasted approximately two weeks, leading to the estimated mid-June launch window.

The SEC reportedly urged applicants to expedite their 19b-4 filings on 20 May, and a significant amendment seen across several filings was the removal of staking.

A Grayscale spokesperson noted:

"At Grayscale, we appreciate the opportunity to engage constructively with regulators as they review spot Ethereum ETFs, and we remain optimistic about the potential of bringing Ethereum further into the US regulatory perimeter in the ETF wrapper."

Cody Carbone, chief policy officer at the crypto lobbying group Digital Chamber of Commerce, expressed his delight:

“I always called the spot Bitcoin ETF approvals, Bitcoin's IPO. This is ETH's IPO. That is a massive stamp of approval.”

Spot Ether ETFs' Approval Process

The green light for Ethereum ETFs follows a meticulous vetting process.

Market analysis played a crucial role, but industry insiders like Grayscale's Craig Salm had previously pointed to the groundwork laid by Bitcoin ETFs.

Salm argued that the SEC's prior experience with Bitcoin ETFs ─ particularly regarding creation and redemption processes, cash vs. in-kind transactions, and custody - directly applies to Ethereum.

This, coupled with the strong correlation between ETH futures and spot prices, likely bolstered the case for approval.

Mirroring the Bitcoin ETF approach, the SEC actively sought public feedback during a dedicated comment period.

Here, US citizens and organisations weighed in on critical aspects like fund custodianship, creation and redemption models, and sponsor fees.

So is ETH a Security or Commodity?

The approval marks a surprising turnaround by the markets regulator.

Earlier this year, the SEC approved spot Bitcoin ETFs with minimal engagement from issuers on Ether ETFs.

This stance changed recently.

The landmark decision came amidst speculation that the SEC might classify Ether as a security.

Just a week ago, financial experts and crypto industry leaders deemed such an outcome unlikely.

The SEC had given little indication it would move forward with spot ETH ETF applications before the looming 23 May deadline.

Also, weeks prior, Ethereum software company Consensys filed a lawsuit against the SEC, alleging that the regulator had secretly considered ETH an unregistered security for over a year.

If the SEC officially labelled ETH a security, Ethereum ETFs would require a different approval process.

Paul Grewal, Chief Legal Officer at Coinbase, affirmed that the SEC’s decision effectively confirms Ethereum's status as a commodity.

Grewal emphasized that Ethereum's recent recognition as a commodity aligns with a long-held belief within the crypto community.

Matthew Sigel, Head of Digital Assets Research, echoed this sentiment, underlining Ethereum's decentralised nature as a defining characteristic of its commodity status.

This acknowledgment finds support from regulatory bodies like the Commodity Futures Trading Commission (CFTC) and previous federal court rulings.

The SEC's approval of Ethereum ETFs further bolsters this classification.

Both Grewal and Sigel referenced historical regulatory actions, such as the CFTC's oversight of ETH futures and public statements by commission officials, as evidence of Ethereum's consistent treatment as a commodity.

This culmination in the approval of spot Ethereum ETFs reinforces Ethereum's standing as a commodity.

Justin Browder, a digital asset lawyer, suggests that if Ether ETFs receive S-1 approval, signalling readiness for trading, it would decisively settle the debate: ETH is not a security.

Adam Cochran, a partner at venture capital firm Cinneamhain Ventures, takes this argument further, suggesting that similar reasoning might apply to tokens of other projects.

However, Seyffart and others caution that the SEC may still pursue individuals involved in staking Ether.

Seyyfart noted:

“[I think they will] try thread this needle and say ETH itself, they're not going to call a security but staked ETH might be a security [...] and I don't believe they're going to give that up any time soon."

Digital asset lawyer Joe Carlasare concurs with Seyffart's perspective, stating:

“The SEC could pursue individual actors and staking as a service even with the ETF launched. I think other actions are less likely."

Finance lawyer Scott Johnsson observes that the SEC's approval order did not explicitly affirm Ether's non-security status, characterising it as "sidestepping" the issue.

In addition, the industry was jolted on Monday when reports emerged that issuers were asked to update their 19b-4 filings ahead of the SEC's deadline to approve or deny VanEck's filing.

This sudden request has fueled speculation about the reasons behind this shift.

By approving spot ETH ETFs, the SEC has potentially acknowledged that ETH is not a security.

This decision marks a significant victory for crypto advocates, given ETH's pivotal role in supporting the Ethereum network, which underpins many of the industry's most notable projects and services.

To secure approval, several ETH ETF issuers recently removed language from their applications regarding the staking of customer ETH.

Since Ethereum transitioned to a proof-of-stake (POS) system in September 2022, ETH holders have been able to stake their funds to earn rewards.

The SEC has consistently maintained that when financial intermediaries offer staking services, they are engaging in unregistered securities activities.

Unlike ETH futures ETFs, which track derivatives contracts and received SEC approval in October, spot Ethereum ETFs require issuers to actually purchase and store ETH on behalf of their clients.

With this approval, traditional financial institutions and investors can soon gain exposure to ETH without needing to hold any cryptocurrency themselves.

Nevertheless, an official statement from the SEC and some of its Commissioners is anticipated in the near future.

Industry Leaders Chimed in on Spot Ether ETFs' Approval, but Some More Wary

Following the announcement, the crypto community on Twitter wasted no time in responding to the SEC's approval.

In addition, industry stakeholders have expressed their optimism for continued growth.

Sergey Nazarov, co-founder of Chainlink, highlighted the significance of the spot Ethereum ETF approval.

He expressed:

“The Ethereum ETF approval is a second large step forward for the crypto industry. It proves that the capital markets are now getting involved in the crypto industry in earnest for some of their largest user bases and most widely used products."

He added that:

"The introduction of spot bitcoin ETFs in January has already demonstrated significant benefits for the digital assets and ETF space, and we believe that spot Ether ETFs will similarly provide safeguards for U.S. investors, allowing them to gain Ether exposure in a transparent, well-regulated and easily accessible structure."

Andrew Jacobson, Head of Legal at 21Shares, described the approval as "a significant step in the right direction."

Rob Marrocco, Global Head of ETP Listings at Cboe, stated that the exchange is "excited to expand our offerings" to include five different spot Ether ETF products.

The 19b-4 approval marks progress towards these listings, and Cboe will continue collaborating with the SEC to bring the ETFs to market.

In spite of the celebratory vibe, some took a more cautious and guarded approach.

A Twitter poll conducted by Bitwise CIO Matt Hougan revealed that a significant number of investors who have purchased Bitcoin spot ETFs are also inclined to invest in Ether ETFs.

VanEck Drops Celebratory Ad; Expects to be the First Issuer of Spot Ether ETF

VanEck wasted no time celebrating the approval of its spot Ether ETFs, releasing a stylish 37-second advertisement inviting viewers to "Enter the ether."

The ad debuted approximately 30 minutes after the SEC greenlit its 19b-4 filing, alongside seven others.

Within a short span, the ad garnered over 1,000 reposts on X and accumulated nearly 280,000 views at the time of writing.

Presently, the digital currency realm is on edge awaiting the SEC's decision on VanEck's spot Ethereum ETF.

VanEck had swiftly filed its amended S-1 post the 19b-4 approval, while other contenders are poised to follow suit.

Despite expectations, the regulatory body has yet to provide feedback, fueling speculative theories.

Balchunas hinted at the possibility that rejection letters have been prepared for VanEck's offering by the Trading & Markets division.

However, confirmation remains elusive, and the journey to approval, if indeed true, has been anything but straightforward.

Sigel suggests that VanEck anticipates being the first to launch its spot Ether ETF.

One of Five SEC Commissioners Who Voted Could Still Challenge the Decision Within Next 10 Days

SEC Chair Gary Gensler maintained an air of mystery regarding the ether ETF decision ahead of the meeting, opting not to offer insights into his agency's stance, but rather advising observers to "stay tuned."

When pressed on Thursday about the agency's response to the impending crypto decision, he remained evasive.

Gensler said outside an Investment Company Institute event in Washington:

"I don't have anything on this particular filing…We do it within the law and how the courts interpret the law, and that's what I'm deeply committed to."

Delphi Labs general counsel Gabriel Shapiro highlighted that the SEC's approval was granted by its Division of Trading and Markets unit under delegated authority, suggesting that one of the five SEC Commissioners could contest the decision within the next 10 days.

While Carlasare acknowledged the theoretical possibility of a challenge, he deemed it unlikely, stating:

“They wouldn't have passed it through trading and markets without knowing that no Commissioner opposed it."

However, Seyffart presented a dissenting opinion, asserting that decisions made with delegated authority are standard practice, as requiring an official vote for each decision would be impractical.

He suggested that seeking a review would not likely alter the approvals.

Ethereum Could Still React to Any Potential Decision from SEC

Following the SEC announcement, the price of ETH surged to over $3,900 before settling at $3,799.60 at the time of writing.

The anticipation surrounding the spot Ethereum ETFs has had a palpable impact on cryptocurrency prices, with Bitcoin (BTC) experiencing a 3.03% decline to $67,322.62, leading the current market reversal.

As Ethereum takes center stage, market observers await its response to the SEC's decision.

With the approval, the coin's price may challenge its All-Time High (ATH) of $4,891.70.

Conversely, a rejection could stifle its momentum, potentially pushing it back towards the $3,000 support level.