Why Spot Ether ETFs Might Take Longer to Launch in the US

• Hopes for quick approval of spot Ether ETFs in the US have dimmed as the SEC takes a cautious approach.
• Recent meetings between issuers and the SEC have not yielded positive signs.
• The industry is divided, with some issuers considering additional filings to address SEC anxieties.
  

The wait for a spot Ether exchange-traded fund (ETF) in the United States may stretch on for longer than anticipated. According to industry insiders, the Securities and Exchange Commission (SEC) appears unlikely to grant immediate approval to applications from major issuers like VanEck and Ark Invest.

Market Divided on Spot Ether ETF Launch

While the SEC is expected to deliver verdicts on several spot Ether ETF proposals by the end of May, recent meetings haven’t yielded promising signs. Sources familiar with the discussions reveal a one-sided approach, with issuers pushing for approval based on the success of Ether futures-based ETFs launched in 2023.

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However, the SEC reportedly hasn’t delved into the specifics of the proposals, raising concerns about potential delays or rejections. This cautious stance from the SEC contrasts with its more active engagement during the greenlighting process for spot Bitcoin ETFs earlier this year.

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Market observers had initially expected Ethereum to follow a similar path, but the current outlook suggests a more protracted battle with the SEC under Chair Gary Gensler . Analysts like Todd Rosenbluth, head of ETF analysis at VettaFi, believe a final decision might be pushed back to later in 2024 or beyond.

The regulatory landscape surrounding cryptocurrencies remains unclear, further complicating the approval process. The optimism that prevailed among issuers in early April has seemingly waned. VanEck CEO Jan van Eck has publicly acknowledged the possibility of his firm’s application being rejected.

Meanwhile, some issuers are considering submitting additional paperwork to address potential SEC concerns and expedite approval. Beyond VanEck and Ark, several other players, such as 21Shares, Fidelity, BlackRock, and Grayscale, also have spot Ether ETF applications pending with the SEC.

Reasons for Potential Denial

If the SEC decides to deny the applications, a lack of established market surveillance mechanisms for spot Ether ETFs could be cited as a justification. The regulator might request more time to analyze data related to these products before approval.

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“I think that would be the mechanical reason why it would get pushed out – they just want to see more data,” said Matt Hougan, Chief Investment Officer at Bitwise Asset Management.

However, there are also fears that an issuer, similar to Grayscale’s legal battle leading up to Bitcoin spot ETF approvals, could challenge the SEC’s decision in court. This could further delay the arrival of a regulated spot Ether ETF in the U.S. market.

On the Flipside

• Despite the bleak outlook, some issuers are optimistic about addressing the SEC’s concerns through new applications.
• Like Grayscale with Bitcoin ETFs, an issuer could challenge the SEC’s decision in court, potentially accelerating approval.

Why This Matters

The SEC’s potential rejection of spot Ether ETFs would throw a wrench into the plans of major investment firms and could significantly hinder mainstream investors’ wider adoption of Ethereum. This decision, if made, would set a contrasting precedent for the SEC’s approach to cryptocurrency regulation compared to its recent approval of spot Bitcoin ETFs.

While the approval of Ether ETFs seems unlikely in the short term, the long-term value of Ethereum depends on factors beyond ETFs. Read about it here:
Ether ETFs Approval in Doubt, But Not Impossible: Here’s Why

Franklin Templeton’s ETF listing on the DTCC is a positive sign for approval by the SEC, but the final decision is still pending. Read more about it here:
Franklin Templeton Ether ETF Listing Raises Hopes for Approval

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.