Regulation
Low correlation, security concerns hamper Spot Ethereum ETFs
As the U.S. Securities and Exchange Commission (SEC) nears its decision on spot Ethereum exchange-traded funds (ETFs), skepticism is growing among crypto industry experts. They highlight concerns about the complex links between Ethereum (ETH) eventually and spot and potential markets security problems.
This skepticism dims the prospects for regulatory approval of these ETFs.
Potential SEC Hurdles to Approving Spot Ethereum ETFs
ETF Shop President Nate Geraci Underlines the need to obtain SEC approval for both a 19b-4 change in trading rules and an S-1 registration statement for any ETF launch. However, the process could experience delays, particularly in S-1 approvals, even if 19b-4s gain approval.
In a separate discussion, James Seyffart, ETF analyst at Bloomberg Intelligence, expressed serious doubts about the approval of spot Ethereum ETFs. He highlighted the low correlations between futures and spot markets seen in 2021.
Learn more: Ethereum ETF explained: what it is and how it works
“Overall, I think it will be something quite objective that will only give a boost going forward. […] If I had to guess, I’d say correlations. These are mainly the future and spot correlations of 2021, which were quite weak on intervals of 1 min and 5 min”, Seyffart said.
Seyffart further explained the SEC’s possibility by stating that “the futures market has not been sufficient over a 3-year lookback period to detect fraud and manipulation in the cash market.” It is important to note that the same argument convinced the agency sued by digital asset manager giant Grayscale.
However, Seyffart stressed that this is just a complete guess. He said a better timeline will be revealed “when we see these 19b-4 orders and the official correlation analysis data from the SEC.”
Proof of Stake Mechanism and Complexities of Staking
Additionally, security classification issues pose another significant barrier. Scott Johnson, general partner at Van Buren Capital, noted that the SEC Considers Treating Ethereum as a Security in the next ETF spot order.
Current law requires the SEC to provide “notice of the grounds for disapproval considered.” This cited question was asked and noticed in all Ethereum repositories. Yet Johnson believes the SEC has never asked such questions when filing a Bitcoin ETF.
“The obvious purpose is potentially to deny on the grounds that these cash deposits are improperly deposited as commodity-based trust shares and are not eligible if they hold a security,” Johnson said. said.
David Han, institutional research analyst at Coinbase, added another level of complexity in the debate. In a recent report, he highlights the differences between Bitcoins proof of work (PoW) and Ethereum proof of participation (PoS).
He mentioned the regulatory environment for asset staking remains unclear, in particular for Ethereum spot ETFs which allow staking. Han argued that risks associated with staking, such as discount conditions, validator client variations, fee structures, and liquidity issues, make the SEC’s approval of Ethereum spot ETFs unlikely soon. .
Learn more: How to invest in Ethereum ETFs?
This perspective is consistent with recent adjustments by ARK Invest and 21Shares. The companies have reportedly modified their Ethereum ETF spot application to remove clauses related to staking. Initially, they aimed to invest in Ethereum (ETH) owned by the company, which would have been considered income for the fund.
THE Upcoming SEC Response Deadlines The VanEck and ARK Invest Ethereum ETF applications will take place on May 23 and 24, respectively. While the SEC deliberates, the crypto community is watching closely. They are eager to see if the SEC overcomes these obstacles or further delays the one-time introduction of Ethereum ETFs to the market.
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