Do potential spot Ethereum ETF approvals signal a shift in US crypto policy?
The SEC has only asked for minor updates to the important 19b-4 forms for prospective spot Ethereum ETFs, a source told The Block today. Balchunas said he heard that the 19b-4 forms were to be returned to the SEC by 10 a.m. ET this morning — adding that approval for these forms might happen as early as tomorrow.
The SEC has key deadlines on Thursday and Friday to decide whether to approve the applications for spot Ethereum ETFs submitted by VanEck and ArkInvest/21 Shares, respectively. Responding to yesterday’s news, VanEck simply posted “no sleep” on its official X account. Hashdex, Grayscale, Invesco, Fidelity, BlackRock, Franklin Templeton and Bitwise are also among the riders in the spot Ethereum ETF race.
Overturning the SEC’s SAB 121
Last week’s Senate vote to overturn the SEC's Staff Accounting Bulletin 121 could be behind the potential reversal — amid an emerging alliance between Wall Street, crypto and Washington — according to some industry experts.
The SEC issued the bulletin in April last year, making it effectively impossible for Wall Street banks to custody crypto assets on behalf of clients, Bitwise CIO Matt Hougan wrote on Monday — specifically stating that if a bank offered crypto custody services, it would have to treat those custodied crypto assets as a liability on its own balance sheet.
A rare bipartisan consensus emerged and the Senate voted 60 to 38 on a resolution to overturn the bulletin, despite warnings from President Joe Biden he could veto the vote.
Hougan suggested the consensus was down to money.
“The record-setting launch of spot Bitcoin ETFs woke Wall Street up to the reality that there is a lot of money to be made in custodying crypto assets,” he said. “The Wall Street lobby was so strong — or, if you prefer, the logic of overturning the bill was so clear (I’ll let you make your own interpretation) — that Democrats felt okay bucking their president.”
The reason this matters has “nothing” to do with crypto custody — “it signals a much bigger trend: the emerging alliance between Wall Street, crypto and Washington,” Hougan said. “Our overarching view at Bitwise is that crypto is in the process of going mainstream, and that this progress will push crypto to all-time highs.”
Several legislators from Biden's party, including Senate Majority Leader Chuck Schumer, D-N.Y., voted in favor of the measure, while anti-crypto skeptics like Sen. Elizabeth Warren, D-Mass., were against it.
“If the spot ETH ETF is approved, it will be a true shock to everyone I know in DC who's close to this process,” Variant Fund Chief Legal Officer Jake Chervinsky said in response to Balchunas yesterday. “That doesn't mean it won't happen. It means approval could signal a major shift in US crypto policy after the SAB 121 vote, perhaps more important than the ETF itself.”
Former President Donald Trump also recently hosted an event of crypto supporters who bought his Trump “Mugshot” NFTs, going on record supporting crypto, accepting it for campaign donations and labeling Democrats and the Biden administration as anti-crypto.
“All of these events, in our view, have likely caused a last minute change of heart in the incumbent admin, perhaps realizing the anti-crypto stance may turn out to have a political cost,” Bernstein analysts Gautam Chhugani and Mahika Sapra wrote in a note to clients on Tuesday.
“Given the sustained demand inflow seen by bitcoin, leading to 75% rally since the ETF approval, we would expect similar price action for ether,” they added. “However, ETH free float and supply looks even more attractive than bitcoin…constrained by sticky investors and utility locking supply in financial smart contracts.”
Why staking could be key
Another crucial factor in the potential spot Ethereum ETF approvals appears to be the separation of ether, the asset, from its staking functionality. Unlike Bitcoin, Ethereum’s proof-of-stake consensus protocol allows users to stake their assets on the network, contributing to its security in return for a yield — currently around 3% .
Interestingly, Ark Invest cut the staking component of its spot Ethereum ETF application last week, with Fidelity following suit in an amended S-1 registration statement this morning — removing all language related to staking or staking rewards.
This may be due to the SEC's concerns about staking cryptocurrencies. For example, the SEC sued Coinbase in June 2023 for providing access to staking through its platform, claiming it was violating securities laws.
“Looks like you got a final answer as to whether SEC will allow staking: No,” Balchunas said in response to Fidelity’s move. “As this is the first amendment of any document to roll in post-SEC 180 and their comments to issuers yesterday.”
The ETF Store President Nate Geraci also cited the removal of staking amid the reasons he maintained “some level of optimism” regarding spot Ethereum ETF approvals. He also questioned other potential rationales for denial, suggesting that if there was a lack of correlation between spot and futures markets or if ether was a security, then why did the SEC approve the Ethereum futures ETFs.
“You never know what SEC will do (and they still haven’t approved anything), but I didn’t understand the logic for disapproval here,” Geraci said. “The approval of ETH futures ETFs was linchpin, in my opinion. If they wanted to draw a line in the sand on ETH, that was the opportunity. They didn’t take it.”
Last week, Coinbase analyst David Han took the then contrarian viewpoint that the market may be “ underestimating ” the timing and odds of a potential spot Ethereum ETF approval, with the mismatch leaving room for “surprises to the upside.”
Han also cited the correlation between CME futures and spot exchange rates — a rationale used to approve the spot Bitcoin ETFs — but warned that spot Ethereum ETFs that include staking elements were unlikely to be approved.
The Ethereum-based decentralized prediction market platform Polymarket was pricing in the chances of a May approval at 10% before yesterday’s news, with odds subsequently jumping to 61% .
Ether is trading for $3,773 at the time of publication, according to The Block's price page — up 22.6% over the past 24 hours.
Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.Address：https://www.j56.xyz/markets/7505.html
