The Securities and Exchange Commission (SEC) has opened the floor for comments regarding the proposals from Grayscale, Fidelity, and Bitwise to introduce spot Ethereum exchange-traded funds (ETFs).
These comments are in relation to the proposed rule changes sought by two exchanges—Cboe BZX and NYSE Arca—which intend to list and trade shares of the three ETFs.
Comments will be accepted for a period of 21 days following publication in the federal register.
This step is standard in the ETF approval process, similar to the procedure followed for spot Bitcoin ETF applications, which previously solicited input from US citizens and organisations.
Market Correlation
Each notice discusses factors that are expected to influence the SEC’s decision regarding the proposed spot Ethereum ETFs.
A crucial aspect highlighted in the notices is the correlation between ETH futures and ETH spot markets, and whether the spot ETH market is substantial compared to the futures ETH market. This correlation is significant as the SEC has previously approved futures ETH ETFs.
NYSE Arca and Grayscale referenced an analysis by Coinbase demonstrating this correlation and indicating that fraud and manipulation are improbable in the spot ETH market. They also argued that the Investment Company Act of 1940 does not offer relevant protections to justify denying certain spot crypto ETFs, contrary to the SEC’s stance.
Cboe and Fidelity asserted that their proposal and analysis show the relevance of the spot ETH market’s size. NYSE Arca and Bitwise also provided analysis supporting this assertion.
The notices also invite comments on other issues such as fund custodianship, creation and redemption mechanisms, and sponsor fees. These requests for comments are standard and do not indicate the likelihood of a fund’s approval.
Ethereum ETFs
The call for comments follows a history of postponed decisions by the SEC regarding spot Ethereum ETFs. The participation of prominent fund managers like Grayscale, Fidelity, and Bitwise underscores the importance and increasing interest in cryptocurrency-based financial products among traditional investment entities.
The goal of the three fund managers is to establish a spot ETH ETF, allowing investors to buy shares reflecting Ethereum’s price. Following the SEC’s approval of 11 Bitcoin ETFs in January, which have since attracted significant inflows and popularity, there is strong momentum to obtain similar regulatory approvals for Ethereum-based products.
Coinbase recently engaged in discussions with the SEC regarding Grayscale’s Ethereum ETF proposal. Grayscale intends to convert its existing Ethereum Trust into a spot ETH ETF, a move supported publicly by Coinbase in a recent presentation to the regulator.
The push for Ethereum ETFs comes amid mixed market sentiments. While the SEC’s approval of spot Bitcoin ETFs was a significant development, analysts hold differing views on the prospects for Ethereum ETFs.
Some speculate that the SEC might delay approval to create a temporal gap between Bitcoin and Ethereum products. Nevertheless, entities like Standard Chartered remain optimistic, anticipating SEC approval by May.