Author: Nianqing, ChainCatcher
This morning, it was revealed that the U.S. Securities and Exchange Commission asked exchanges to speed up the update of 19b-4 applications. Following the relevant rumors, Bloomberg ETF analysts Eric Balchunas and James Seyffart raised the probability of approval of the spot Ethereum ETF from 25% to 75%, and then corrected it to refer specifically to the approval probability of 19b-4.
Influenced by this news, the price of ETH quickly broke through US$3,600, rising to a high of US$3,693, with a 24-hour increase of more than 19%.
The sudden progress may be the SEC's "delaying tactic" to deal with the political situation
According to CoinDesk, three people familiar with the matter said that the U.S. Securities and Exchange Commission asked exchanges to speed up the update of 19b-4 applications, indicating that it may approve the relevant applications before the key deadline (May 23). A company that is negotiating with the SEC also mentioned that the SEC was still delaying a few weeks ago, but now it is finally on the right track to approval.
It’s important to note, however, that this doesn’t mean the ETF will be approved. The potential issuer will also need its S-1 filing approved before the product can begin trading. The SEC may take indefinitely to approve an S-1 filing, as it has no deadline.
Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart raised the odds of spot Ethereum ETF approval from 25% to 75% on Monday after hearing news that the SEC may take a more favorable stance on the application. But then, Eric Balchunas emphasized that the 75% probability is only for the May 23 deadline of 19b-4 (VanEck's deadline), and the applicant also needs S-1 approval, which may take weeks to months before the S-1 is approved and the actual Ethereum ETF goes online.
It is understood that the 19b-4 document is a document submitted by the exchange. This type of document is usually related to changes in the rules of exchange operations, such as the introduction of new products, modification of trading mechanisms or other related exchange policies. Once submitted, the SEC will review the proposal and publicly solicit public opinions before deciding whether to approve it; the S-1 document is a registration statement that a company must submit before publicly issuing shares. This document discloses in detail key information such as the issuing company's financial status, operating conditions, market environment, preliminary pricing of stocks, and risk factors.
Eric Balchunas also hinted in a related tweet that the SEC’s sudden 180-degree turn in its attitude towards the Ethereum spot ETF may be due to growing “political issues.”
As ChainCatcher previously reported, Donald Trump expressed his desire to keep cryptocurrency businesses in the United States and began accepting campaign donations in the form of cryptocurrencies. He essentially promised to be a pro-cryptocurrency president if he returns to the White House in the upcoming election. Subsequently, 12 Democratic U.S. senators joined Republicans in passing a resolution last week to overturn the SEC's Staff Accounting Bulletin (SAB) 121. The move may indicate that more Democrats hope to win over voters who support cryptocurrencies, as Republicans have historically done.
The 2024 US election will be held on November 5. Therefore, in the current situation where the situation is not clear, the SEC requires exchanges to speed up the update of 19b-4 applications. It is very likely that the 19b-4 applications of relevant institutions will be approved first, and then the S-1 documents will be approved slowly, because this approval does not have a deadline like 19b-4. Therefore, this move is more like a "delaying tactic" of the SEC.
Previously, several review decisions were repeatedly postponed to the final deadline.
Prior to this, the SEC had repeatedly postponed the decision time for multiple Ethereum spot ETFs.
On May 7, the SEC postponed its decision on the Invesco Galaxy Ethereum Spot ETF to July 5, 2024, stating that “it is appropriate to designate a longer period for issuing an order approving or disapproving the proposed rule change to allow sufficient time to consider the proposed rule change and the issues raised therein.”
Over the past two months, the SEC has delayed decisions on Ethereum spot ETFs from Fidelity, Hashdex Nasdaq, ARK 21Shares, Grayscale, Franklin Templeton, VanEck, BlackRock, and others. All ETF review decision delays have lasted until May 23.
There are four review deadlines for Ethereum spot ETFs (45 days, 45 days, 90 days and 60 days). Once an institution submits a new ETF application, the SEC will register the application in the Federal Register. From the day of registration, a 240-day cycle will begin. When the deadline for each stage comes, the SEC must respond: approve, reject or postpone the review. If there is no resolution on the first date, it will be postponed to the second, until it is delayed to the deadline, and the SEC must make a final resolution. In other words, May 23, the deadline for the Ethereum spot ETF applied by VanEck, will be a critical date, and whether it is approved or not will directly affect the resolution results of other applications.
Currently, seven entities are applying for Ethereum ETFs, namely: BlackRock, Fidelity, Invesco & Galaxy, Grayscale, VanEck, 21Shares & Ark and Hashdex. The approval period of each fund at the SEC is shown in the following table:
If the SEC rejects the 19b-4 filing for the VanEck Spot Ethereum ETF on May 23, the issuer will need to resubmit the filing, restarting the 240-day application cycle. This could result in approval in the fourth quarter of this year or early 2025.
Some lawyers said they might sue the U.S. Securities and Exchange Commission if issuers reject planned ethereum products, as a court ruling ultimately helped a U.S. spot bitcoin ETF begin trading.
“Ethereum spot ETF still has certain risks”
The US SEC and several analysis agencies have stated that compared with the Bitcoin spot ETF that has been listed, the Ethereum spot ETF still has certain "risks". In public documents, the SEC has emphasized the negative impact of the Ethereum PoS mechanism, price manipulation risks, and securitization risks.
Matteo Greco, an analyst at Fineqia International, said in a research note on Monday that concerns about liquidity in ETH’s spot and futures markets, as well as its previous classification as a security by the SEC, have raised doubts about ETH’s quick approval.
Additionally, the SEC’s lack of engagement with potential issuers over the past few months is a departure from the multiple meetings the regulator held with fund companies ahead of the approval of a Bitcoin spot ETF.
However, more people in the industry believe that it is only a matter of time before the Ethereum spot ETF is approved. 21Shares President Ophelia Snyder previously said that these applications for Ethereum are not much different from those for Bitcoin. They have the same structure, the same custodian, and the same disclosure information. The internal structure of the two is highly consistent.
At the end of April, the Ethereum spot ETFs of several institutions in Hong Kong were approved by the Securities and Futures Commission and listed. Although the scale is currently limited, it is still a key step in crypto regulation and also provides a certain reference for the approval of the Ethereum spot ETF in the United States.
