The Securities and Exchange Commission is moving closer to approving a highly anticipated ‘spot’ Ethereum exchange-traded fund as soon as this week, FOX Business has learned.
According to sources close to the Commission, the SEC and its Chairman Gary Gensler are taking cues from recent court rulings and prior guidance on Ethereum futures ETFs to grant nine issuers permission to offer products that track the daily price of the world’s second largest cryptocurrency.
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While approval isn’t certain, SEC staff have been signaling they’re warming up to the idea of at least partially green lighting these products as soon as Thursday, which is the deadline for the agency to decide whether to approve so-called 19b-4 applications filed by the CBOE exchange, requesting to list Ethereum spot ETFs from VanEck and Ark Investments in partnership with 21 Shares.
Approving the 19b-4 applications is the first in a two-part process where the SEC would also have to approve issuers’ registration statements, known as S-1s – a process that could take several weeks – meaning the ETFs may not officially launch until later this year.
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But an SEC blessing would be yet another significant development in the maturation of the $2 trillion crypto industry.
Many had given up hope the SEC would smile on an Ethereum spot ETF, given the lack of engagement on applications and the uncertainty surrounding the Commission’s thinking about Ethereum’s status as a possible security.
But on Monday the SEC began actively engaging with issuers and national exchanges ahead of Thursday’s deadline, which is what it did before approving eleven ETFs that tracked the daily price of Bitcoin in January.
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The SEC, through a spokesman, declined to comment.
Potential ETF issuers who spoke on the condition of anonymity tell FOX Business they were surprised by what appeared to be a sudden change of heart by the agency.
Many industry participants have attributed the abrupt SEC engagement to the increasing bipartisan support for the digital assets industry from Congress and former President Trump, who has said he would embrace the use of crypto and end the Biden Administration’s regulatory “hostility” towards the industry if elected.
On Tuesday, the Trump campaign updated its website to accept donations in cryptocurrency.
Still, sources familiar with Gensler’s thinking say he has been looking at other factors such as the court ruling involving crypto asset manager Grayscale and the Commission’s prior green lighting of Ethereum futures ETFs, which came to market in October.
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Last summer, a federal appeals court rejected the SEC’s decision to deny Grayscale’s petition to convert its GBTC Bitcoin Trust into a spot ETF, saying the agency failed to make convincing arguments the bitcoin spot ETF was materially different to the futures ETF which had been trading since 2021. The Grayscale ruling laid the groundwork for the rollout of the bitcoin spot ETFs, and now, possibly the Ethereum spot ETFs as well.
According to paperwork filed today by issuers, it appears the SEC’s main sticking point for approving an Ethereum spot ETF is the so-called “staking,” which allows investors to earn passive income by staking their Ethereum as collateral and earning a return. In an ETF format, it may allow for investors to receive greater returns as opposed to the ones they may receive with an ETF that solely tracks the daily price of Ethereum.
It’s staking by which the SEC believes it may have a case that “Ethereum 2.0”, or Ethereum issued since the blockchain’s merge to a so-called “proof-of-stake” consensus mechanism in 2022, may qualify as a security.
Indeed, if the SEC approves the Ethereum ETFs on Thursday without the staking component, it doesn’t negate the fact that Ethereum issued on today’s proof-of-stake network may be a security in the eyes of the Commission. FOX Business reported in April that the SEC’s Enforcement Division has been investigating Ethereum, its merge, and companies and individuals associated with it for at least a year.
While the SEC maintains outside political factors do not influence it, there’s no doubt crypto has become an increasingly political issue in recent weeks.
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The Biden Administration, including Senate Democrats such as majority leader, Chuck Schumer (D-New York), appear worried that Republicans and GOP presidential candidate Donald Trump could seize on the growing popularity of digital assets, particularly among young voters, and use the administration’s crypto crackdown to win votes and take the White House and possibly the Senate.
Last week, Schumer led a group of twelve Democrats to vote to repeal a controversial SEC rule that would limit the ability of crypto companies to get fair access to the banking system. The 60-38 vote to repeal was widely regarded as a breakthrough moment for the industry, who until recently, has grappled with a Democratic party that’s shown unwavering support for Gensler and his regulatory crackdown on crypto.
On Wednesday, the House is scheduled to vote on a first-of-its-kind bill that would establish a comprehensive regulatory framework for digital assets, a base for establishing clarity for crypto companies and investors.
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