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SEC Opens Door to Spot Ether ETFs in Big Crypto Win
The Securities and Exchange Commission on Thursday cleared the way for exchange-traded funds that invest directly in the cryptocurrency Ether, putting the digital asset industry on the brink of a significant milestone.
In a first-of-its-kind blessing, the SEC has approved a proposal from venues run by Cboe Global Markets Inc., Nasdaq and the New York Stock Exchange to list products tied to the world’s second-largest cryptocurrency. The move, which seemed unlikely until last week, removes a key hurdle for spot trading of Ether ETFs in the United States. Issuers now require separate approval from the regulator; no deadline has been set for this decision.
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Investment firms including VanEck, ARK Investment Management, BlackRock Inc. and Fidelity Investments are all vying for crucial first-mover advantage in the race to launch a spot Ether ETF. Their interest has been piqued by billions of dollars poured into new Bitcoin ETFs since January, when the SEC approved trading in such products.
Coinbase shares gained as much as 4.1% in after-hours trading Thursday, while Robinhood shares rose nearly 3%. THE cryptocurrency The market’s response to the news was relatively modest: Ether traded at around $3819.80 shortly after the release
Beyond ETFs, Thursday’s SEC announcement is fraught with implications for U.S. financial policy.
SEC Chairman Gary Gensler has been ambiguous about his views on whether Ether is a security, fueling concerns that the agency was hardening its stance. Cryptocurrency enthusiasts say they are concerned that he seeks to subject Ether — and potentially projects based on the Ethereum blockchain — to the agency’s strict, expensive and onerous investor protection rules.
Meanwhile, the Commodity Futures Trading Commission, the other main US market regulator with jurisdiction over derivatives, has signaled that it does not consider Ether to be a security. The CFTC has allowed CME Group Inc. to trade Ether futures for years.
Significant victory
As recently as last week, banking firms were arguing that the SEC would reject the Cboe plan – and potentially others – by Thursday’s deadline. Further approval from the SEC is still required for issuers, but the approval represents a significant win for the industry.
Supporters hope the listing will bring a new wave of money to the asset class by appealing to retail and institutional investors, who are interested in cryptocurrencies but are more comfortable investing in ETFs than tokens.
Overall, investors, many of whom retreated after the collapse of the FTX exchange, have already refocused on cryptocurrencies. Ether, the native token of the Ethereum blockchain, has grown more than 60% this year alone thanks to the frenzy.
Cryptocurrency crackdown
Part of this rally is due to optimism that the US crackdown on the sector may be easing. The Republican-led House advanced sweeping cryptocurrency legislation Wednesday despite opposition from the White House and Gensler. While the Senate is not expected to pass the measure, it has garnered some Democratic support in the House.
On the jurisdictional issue, Lee Reiners, policy director of the Duke Financial Economics Center at Duke University, said the exchange offers to list the products were based on Ether being a commodity and not a security. The SEC’s decision to greenlight the plan reinforces the view that the SEC still considers Ether not a security, he said.
Investment firms seeking to list the products have already made concessions to gain SEC approval.
Fidelity Investments said it will keep Ether purchased as part of the ETF out of programs that pay rewards for blockchain maintenance, known as staking. The latter has been a hot-button issue for Ether because it raises questions about whether the token should be treated as a security. Last year, the SEC in a lawsuit accused Coinbase Global Inc. of breaking its rules by offering staking services.