Ethereum, the second-largest cryptocurrency by market capitalization, faces ongoing scrutiny from the U.S. Securities and Exchange Commission (SEC) as it extends the evaluation period for several Ether exchange-traded funds (ETFs) until May 2024. Among the impacted ETFs are the Hashdex Nasdaq Ethereum ETF and the Grayscale Ethereum Futures ETF.
The Hashdex Ether ETF, designed to encompass both spot Ether and futures contracts, is now subject to the extended timeline. Similarly, the Grayscale Ethereum Futures ETF, strategically positioned as a “trojan horse,” aims to influence the SEC into permitting Grayscale to convert its Ethereum Trust into a spot Ethereum ETF.
The SEC has taken a proactive approach by instituting proceedings to gather additional public input on the potential listing of these ETFs. This delay also affects decisions on the VanEck spot Ethereum ETF and the spot Ethereum ETF submitted by Cathie Wood’s ARK Invest and 21Shares.
Despite these setbacks, analysts maintain an optimistic outlook, anticipating approvals for Bitcoin spot ETFs in early 2024. Notably, Bloomberg ETF analysts James Seyffart and Eric Balchunas predict SEC approval for a spot Bitcoin ETF in January 2024. This optimism persists despite last-minute amendments that applicants are hastily adding to their proposals.
I was initially unsure why they would even file for this. But my thoughts have evolved over the last few weeks and they are basically this:
Grayscale is playing Chess, not checkers here. They're likely hoping to force the SEC into issuing a 19b-4 decision on an ETH futures ETF.…
— James Seyffart (@JSeyff) November 15, 2023
BlackRock’s latest spot Bitcoin ETF update significantly contributes to this positive sentiment. BlackRock has chosen to accept the SEC’s cash redemption system, a departure from in-kind redemptions or those involving non-monetary payments like Bitcoin.
Ethereum ETFs: Cash Trends Amid Regulatory Shifts
Seyffart’s observations show many applicants already adopted a cash-only approach, including ARK and Bitwise. Valkyrie has even done this completely for its bitcoin futures ETF in Canada. Others, such as Grayscale and WisdomTree, remain, including in-kind or cash in their filings.
In December, finance lawyer Scott Johnsson predicted that ETFs would change toward a cash creation and redemption model. The developments have a common thread: not only is the landscape dynamic, but applicants are adjusting their strategies to conform to changing regulatory expectations.
— Scott Johnsson (@SGJohnsson) December 13, 2023
As fund managers continue to await a decision from the SEC as regards Ether, including products, it is catching up in approval chances with Bitcoin and may soon receive its turn for scrutiny. In this panorama of cryptocurrency investment products within America’s financial marketplace, you never know what might happen next.