Ethereum
SEC Approves Rule Change to Allow Creation of Ether ETFs
The end of May has long been seen as a potential decision date for ether funds, as it coincided with the SEC’s deadline to decide whether the VanEck Ethereum ETF could proceed.
Many companies that sponsor Bitcoin ETFs, including BlackRock, Bitwise, and Galaxy Digital, have also begun the process of launching an Ether fund.
Ether price only increased 2%, although it follows an increase of 20% from the start of the week in anticipation of Thursday’s decision. Some investors may also be on pause, as the SEC’s approval of the rule change does not guarantee that all funds will be launched.
Specifically, the SEC’s order approves applications from various exchanges to list eight different ether funds. Technically, the order does not approve the funds themselves or set a date when the ETFs will begin trading.
Ether ETFs are expected to be smaller, at least initially, than their Bitcoin counterparts. The Grayscale Ethereum Trust currently has around $11 billion in assets, which is much lower than what the company’s Bitcoin fund was before its conversion.
The approval of ether ETFs is a sign that the SEC’s stance toward crypto may be softening after a series of legal battles. The agency lost a case against Grayscale in 2023, which boosted the approval of Bitcoin products.
The SEC’s efforts to regulate crypto have also faced increased scrutiny from politicians. The Senate passed a resolution last week to withdraw an SEC staff bulletin on accounting rules for digital assets.
Ether is the second largest crypto asset and has become something of a blue chip coin along with Bitcoin, although its value proposition is markedly different. While Bitcoin is primarily viewed as a long-term store of value, an investment in ether is viewed more as an investment in early-stage technology. The ether token powers the Ethereum network, which powers different applications, such as decentralized finance (DeFi) projects, non-fungible tokens (NFTs), or the tokenization of real-world assets like commodities, securities, etc. art, real estate and much more.
The applications approved Thursday do not apply to other crypto projects on the Ethereum network, said Richard Kerr, a partner at law firm K&L Gates.
“If and when an Ethernet product is approved, it does not mean that a similar product for other digital assets on the Ethereum platform will be approved,” Kerr said.
Ethereum also offers staking opportunities, which allow investors to earn interest on their ether holdings by locking tokens on the network for a certain period of time – although ether ETFs in the United States cannot participate. The SEC alleged in lawsuits against Coinbase and Kraken that staking-as-a-service offerings were unregistered securities. Ark, Fidelity and Grayscale updated their documents this month to remove staking from their proposals.
Lack of participation in ETF products is another reason ether ETFs may see less demand than their bitcoin counterparts, said Steven Lubka, managing director of Swan Bitcoin and head of Swan Private.
“These numbers will not match Bitcoin ETF inflows, and there are some structural differences in the product that make it less attractive overall,” Lubka said.