Ethereum Spot ETFs Near SEC Approval Amid Crypto Market Growth

The Securities and Exchange Commission (SEC) is reportedly moving closer to approving a highly anticipated ‘spot’ Ethereum exchange-traded fund (ETF).

According to sources close to the Commission, the SEC and its Chairman, Gary Gensler, are influenced by recent court rulings and previous guidance on Ethereum futures ETFs, Fox Business reported.

This development could permit nine issuers to offer products tracking the daily price of the world’s second-largest cryptocurrency.

Ethereum Spot ETF Decision Imminent

While approval isn’t guaranteed, SEC staff have indicated they may partially approve these products as soon as Thursday.

This date marks the deadline for the agency to decide on 19b-4 applications filed by the CBOE exchange, requesting to list Ethereum spot ETFs from VanEck and Ark Investments in partnership with 21Shares.

Approval of these applications is the first step in a two-part process. The SEC would also need to approve issuers’ registration statements, known as S-1s, a process that could take several weeks.

Therefore, the ETFs might not launch until later this year.

Industry Reaction to Potential Approval

Many in the industry had doubted the SEC would approve an Ethereum spot ETF, given the lack of engagement and uncertainty around Ethereum’s status as a possible security.

However, on Monday, the SEC began engaging with issuers and national exchanges ahead of Thursday’s deadline.

This approach mirrors the SEC’s actions before approving eleven Bitcoin-tracking ETFs in January. The SEC has not commented publicly on the matter.

ETF issuers, speaking anonymously, expressed surprise at the SEC’s apparent change of heart.

This shift is attributed to increasing bipartisan support for the digital assets industry from Congress and former President Trump, who has expressed support for crypto and criticized the Biden Administration’s regulatory stance.

Court Rulings and Previous Approvals Influence SEC

Sources familiar with Gensler’s thinking suggest he is considering factors such as a court ruling involving crypto asset manager Grayscale and the SEC’s prior approval of Ethereum futures ETFs, which launched in October.

Last summer, a federal appeals court overturned the SEC’s decision to deny Grayscale’s petition to convert its GBTC Bitcoin Trust into a spot ETF.

The court ruled that the SEC failed to distinguish between the proposed Bitcoin spot ETF and the existing futures ETF.

This ruling paved the way for Bitcoin spot ETFs and may now facilitate the approval of Ethereum spot ETFs.

Staking Component and Security Classification

According to recent filings by issuers, the main hurdle for approving an Ethereum spot ETF is “staking.” Staking allows investors to earn passive income by using their Ethereum as collateral and earning a return.

In an ETF format, this could potentially offer greater returns than an ETF that solely tracks Ethereum’s daily price.

The SEC is concerned that staking might qualify Ethereum 2.0, or Ethereum issued since the blockchain’s transition to a proof-of-stake consensus mechanism in 2022, as a security.

If the SEC approves Ethereum ETFs without the staking component, it won’t negate the possibility that Ethereum on the proof-of-stake network could be considered a security by the Commission.

FOX Business previously reported that the SEC’s Enforcement Division has been investigating Ethereum, its merge, and related entities for over a year.

Political Context and Crypto Regulation

Despite the SEC’s stance that external political factors don’t influence its decisions, crypto has become an increasingly political issue.

The Biden Administration and Senate Democrats, such as Majority Leader Chuck Schumer (D-New York), are reportedly concerned that Republicans and GOP presidential candidate Donald Trump could leverage the popularity of digital assets, particularly among young voters, to gain political advantage.

Recently, Schumer led a group of twelve Democrats to vote to repeal an SEC rule limiting crypto companies’ access to the banking system. The vote was seen as a significant breakthrough for the industry.

On Wednesday, the House is set to vote on a groundbreaking bill to establish a comprehensive regulatory framework for digital assets.

This bill aims to provide clarity for crypto companies and investors, potentially shaping the future of the industry.

Significance of SEC Decision

The SEC’s decision on Ethereum spot ETFs is eagerly awaited and could mark a significant milestone in the evolution of the $2 trillion cryptocurrency industry. The outcome will be closely watched by market participants and regulators alike.

Also Read: Trump Trial: Defense and Prosecution Rest Their Cases