Wall Street hopes for a quick follow-up to Bitcoin ETFs are fading fast.
The Securities and Exchange Commission technically has until late May to approve or deny applications to launch the first exchange-traded funds that would hold Ether, the second-largest cryptocurrency. But for practical purposes, it’s already almost out of time.
On May 23, the agency faces a final deadline to make a decision on an application by VanEck for changes that would let it launch an ETF holding spot Ether, which has a market value of about $400 billion. It’s one of several companies, including
Invesco
,
BlackRock
,
and Fidelity, that are seeking to launch similar funds.
For practical purposes, if the agency were receptive to the ETFs, it would likely try to approve several applications at once—so as not to appear to be picking a winner. That’s what the SEC did in January, when it approved 10 Bitcoin ETFs. Those funds have been very successful, gathering a net $33 billion and helping to propel Bitcoin prices to all-time highs.
However, there’s growing evidence that it won’t be such smooth sailing for Ether. Some ETF issuers have met with the SEC to talk about their products, but so far, those discussions have largely been one-sided, without the agency giving the companies the critical feedback needed to finalize their products, according to people familiar with the matter. At this point in the Bitcoin ETF process, the issuers were already engaged in a robust back-and-forth with agency staff.
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The SEC didn’t respond to a request for comment.
Early in the year, some analysts were bullish that an
Ether ETF
would soon be approved. A federal court last year essentially forced the SEC to approve Bitcoin ETFs, ruling that the agency hadn’t given a good reason why such funds should be treated differently than the Bitcoin futures funds it had already accepted.
Since the SEC has similarly allowed ETFs that hold Ether futures to come to market, the argument went, the agency would be in a similar bind with spot Ether funds.
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But a number of issues could set the Ether funds apart from their Bitcoin brethren.
For one, some of the applicants have asked for the right to post the tokens they hold to the Ether network—a process called “staking” that would potentially pay the fund a yield. Staking introduces potential risks into the funds not present with Bitcoin, whose network doesn’t feature staking.
Second, while SEC officials ahead of the Bitcoin ETF approvals had said they don’t consider Bitcoin a security, they haven’t been nearly as clear with Ether. While an agency official in 2018 said he didn’t believe the second-largest cryptocurrency fell under the SEC’s remit, lately SEC Chair Gary Gensler has been more circumspect. In March, Fortune reported that the agency is seeking to label Ether a security. Such a designation could make it more difficult for the ETFs to be approved.
Some Ether ETF applicants could decide to sue the SEC if their applications are denied. Grayscale Investments went that route in 2022 when the agency denied its application to convert the
Grayscale Bitcoin Trust
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into an ETF. In that case, it took about 14 months between the lawsuit’s filing and Grayscale’s victory, and another four months before the funds came to market.
The SEC might re-engage with issuers in coming weeks and could sign off, partly because technical issues that were ironed out with the Bitcoin ETFs could smooth the path for Ether funds.
Assuming the SEC doesn’t make a decision soon on this crop of Ether ETFs, however, it may be 2025 or later before the first ones launch.
Write to Joe Light at [email protected]
This news is republished from another source.
