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The SEC’s surprise blessing on Ethereum ETFs is the cryptocurrency makeover that no one expected
ETFs aren’t exactly the most exciting asset class. They’re the kind of safe investment that your dad or financial planner tells you to load up on: Why bet on individual stocks when you can own just a slice of an entire industry or, better yet, the S&P 500? For the topsy-turvy world of cryptocurrencies, however, ETFs have been the most shocking spark of life since 2021’s NFT craze.
In short, the cryptocurrency industry has been trying to introduce Bitcoin into mainstream finance through ETFs since 2013, when the Social Network-famous Winklevoss twins first applied with the SEC to create an exchange-traded asset that would hold and track the underlying Bitcoin. They were rejected, like every other applicant, until last year, when cryptocurrency firm Grayscale won a crucial court case in favor of the product. Finally the SEC surrendered in January, causing cryptocurrency prices to soar. The initial class of 11 Bitcoin ETFs was among the most successful of all time, with BlackRock and Fidelityoffers lead the charge. (The Winklevii never received their ETF, although their Gemini company serves as custodian for one of them.)
Still hot on Bitcoin’s heels, Ethereum, the second largest cryptocurrency, seemed like the natural next candidate. Bitcoin’s success had already marked a new era for cryptocurrencies, in which massive investment managers like hedge funds could comfortably dip your toes in the field. An Ethereum ETF would solidify cryptocurrencies’ status as a bona fide asset class accepted, or even included, in mainstream finance.
For months the dream seemed impossible. Unlike Bitcoin, which US regulators have long recognized as a commodity, the twin agencies of the SEC and CFTC have clashed over whether Ethereum should be regulated as a commodity or a security. The SEC, under the controversial presidency Gary Genslerhas Done a series of sorties in recent weeks indicated that he would assert that Ethereum was a security and under his strict mandate. An ETF on an unregistered stock would obviously be impossible.
Every potential issuer I spoke to was convinced that the Ethereum ETF would be rejected. In April I interviewed Jan Van Eck, the head of his eponymous firm, who told me that the SEC’s lack of commitment meant they were likely to block any progress. The question wasn’t when approval would finally come, but who would pursue the inevitable lawsuit by defying rejection, as Grayscale once did with the Bitcoin ETF, to force the SEC’s hand.
Some were still optimistic. Two weeks ago I met with Dave LaValle, global head of ETFs for Grayscale, who told me he wasn’t about to give up hope. Even when I pressed Grayscale’s willingness to once again lead the litigation charge, he said we should wait for a decision first. “I quit my day job of predicting what the SEC will do,” he told me.
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In the end LaValle was right. As quickly as a memecoin goes to zero, the SEC appears to have changed its mind right before the deadline for a decision, engaging with both issuers and exchanges that would list the products on crucial forms. Some speculated that the 180 came due to a series of policy victories for the cryptocurrency industry in Congress, including the House’s passage of a broad regulatory bill with bipartisan support. Regardless of the reason, the SEC approved all eight requests on Thursday. While there are still some last ones obstaclesnegotiations are expected to begin in the coming weeks.
The win caps an extraordinary year for cryptocurrencies, which saw the sector recover from the Sam Bankman-Fried crisis trial to all-time highs, supported by the launch of an unquestionably – and unusually –
boring investment vehicle. Don’t be surprised if a Dogemoneta The ETF comes next.
Leo Schwartz
Twitter: @leomschwartz
E-mail: leo.schwartz@fortune.com
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This story was originally featured on Fortune.com