According to SEC Chair Gary Gensler, the timing for the launch of ETFs tied to the cryptocurrency ether in the United States hinges largely on how swiftly issuers address inquiries from the US SEC.
Last month, the SEC approved applications from Nasdaq, CBOE, and NYSE to list spot ether ETFs, a decision that surprised many in the cryptocurrency industry. The industry had anticipated rejections following discouraging meetings with the regulator.
The SEC must still approve the ETF issuers’ registration statements, which include detailed investor disclosures before trading can commence. This approval process typically involves extensive communication between the ETF issuers and SEC officials. Gensler emphasized that the speed of this process is dependent on the issuers’ responsiveness to the SEC’s feedback.
Influence of the Grayscale Court Challenge
Gensler and SEC officials had yet to previously comment on the rationale behind the SEC’s unexpected approval of the ether exchange filings. On Wednesday, Gensler explained that last year’s court challenge by Grayscale Investments, which led to the SEC approving spot bitcoin ETFs in January, influenced the regulator’s approach to ether ETFs.
Grayscale successfully argued that since the SEC had previously approved ETFs tied to bitcoin futures, it should also approve spot bitcoin ETFs, as bitcoin futures prices are closely correlated with spot prices.
The SEC staff reviewed the ether ETF filings and found that the correlations between ether futures and spot prices were similar to those in the bitcoin market. Following the court ruling in Grayscale’s favor, the SEC approved spot bitcoin ETFs earlier this year. Gensler acknowledged the court’s decision and stated that approving these products was the most sustainable path forward.
SEC’s Concerns About the Crypto Market
Despite the approval of ether ETFs, Gensler reiterated his concerns about the cryptocurrency market, describing it as “rife with fraud and scams and conflicts.” He emphasized the need for rigorous regulatory oversight to protect investors and maintain market integrity. This cautious stance reflects the SEC’s ongoing vigilance in monitoring the rapidly evolving cryptocurrency landscape.
In a recent CNBC appearance, Gensler discussed the expected timeline for reviewing spot Ethereum ETF S-1 reports. According to Eleanor Terrett of Fox Business, the review process may be lengthy, potentially delaying the approval of Ethereum ETFs.
NEW: @SECGov Chairman @GaryGensler says the next step in the $ETH ETF approvals “will take some time,” possibly indicating a potential slow-walk of the S-1 approval process. https://t.co/iwfN9vvmt8
— Eleanor Terrett (@EleanorTerrett) June 5, 2024
Last Friday marked a critical deadline as spot Ethereum ETF issuers, including major players like BlackRock and VanEck, submitted their initial draft S-1 forms to the SEC. The review process will involve multiple rounds of feedback and amendments before making a final decision.
Uncertainty in the Altcoin Market
The path to approval for Ethereum ETFs appears more complex than that for Bitcoin ETFs. Recent developments, such as Hashdex’s withdrawal of its application for undisclosed reasons, have introduced uncertainty into the market. Market participants are now closely watching the SEC’s stance on the broader cryptocurrency market and the developments in Bitcoin ETFs.
While traditional financial markets offer greater liquidity than cryptocurrency, investors may still seek to diversify their portfolios by exploring altcoins. The potential funds shift from Bitcoin ETFs to Ethereum ETFs highlights the evolving dynamics of cryptocurrency investment.
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