The U.S. Securities and Exchange Commission (SEC) appears poised to reject numerous applications for Ethereum ETFs (exchange-traded funds), as stated in a recent Reuters report. In recent weeks, discussions between U.S. issuers and the SEC have overwhelmingly leaned towards a negative outcome.
Prominent market players, including VanEck and ARK Investment Management, along with seven other issuers, are encountering significant obstacles as the SEC scrutinizes their proposals to track Ethereum’s spot price.
Unproductive Talks
From the issuers’ perspective, the recent interactions between ETF issuers and SEC officials have been largely disappointing. These discussions have lacked the engagement and detail-oriented inquiries that characterized previous meetings, particularly those leading to the approval of Bitcoin spot ETFs.
Four individuals involved in the talks, who preferred to remain anonymous, described the meetings as one-sided, with little to no substantive feedback from SEC staff on the proposed plans.
This change in the SEC’s approach is noteworthy, especially considering the background of the agency’s chair, Gary Gensler, a well-known skeptic of cryptocurrencies. Under his leadership, there has been prolonged resistance to spot Bitcoin ETFs due to concerns about market manipulation.
However, the tide seemed to turn with the approval of Bitcoin spot ETFs, following a successful legal challenge by Grayscale Investments. This approval had sparked hope among issuers that Ethereum products would also be approved.
Despite issuers’ attempts to align their Ethereum ETF proposals with the previously approved Bitcoin and Ethereum futures-based ETFs, SEC staff have largely remained unresponsive. This has led issuers to expect that the SEC will ultimately reject these Ethereum spot ETF applications.
Market Implications and Ongoing Efforts
The potential denial is not just a procedural setback but also casts a shadow over Ethereum’s market performance. Hong Fang, president of crypto exchange OKX, noted that Ethereum’s price has underperformed compared to Bitcoin, which has seen a 51% increase this year. This underperformance is partly due to market anticipation of a negative ruling from the SEC, which is putting downward pressure on Ethereum prices.
In response to the anticipated rejections, some issuers have expressed their intention to submit additional disclosures to the SEC in the hopes of keeping the lines of communication open and addressing any concerns that might be influencing the SEC’s reservations.
So far, the only disclosed meeting involved crypto exchange Coinbase, focusing on Grayscale’s attempt to convert its Ethereum Trust into an ETF. The arguments presented in these meetings emphasized the high correlation between Ethereum futures and spot markets, mirroring the reasoning that secured the approval of Bitcoin spot ETFs.
However, skepticism within the SEC remains high regarding the depth and quality of market data for Ethereum compared to the more established Bitcoin futures market. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, suggested that the SEC’s reluctance could be due to a desire for more comprehensive data to validate the maturity and stability of the market.
The ongoing uncertainty and the SEC’s hesitation to move forward with Ethereum ETFs may potentially lead to further legal challenges, similar to those faced by Bitcoin ETF proposals in the past. Industry insiders remain hopeful yet cautious, recognizing that approval may require additional litigation or a significant change in the SEC’s stance on cryptocurrency-related products.
