Regulation
SEC approves rule change to allow creation of ether ETFs
The end of May has long been considered a potential decision date for Ethereum funds as it coincided with a deadline for the SEC to decide whether the VanEck Ethereum ETF could proceed.
Many of the companies that sponsor bitcoin ETFs, including BlackRock, Bitwise and Galaxy Digital, have also begun the process of launching an ether fund.
The price of ether increased by only 2%, although it follows a 20% increase. since the beginning of the week awaiting Thursday’s decision. Some investors may also be on pause, as the SEC’s approval of the rule change does not guarantee the launch of all funds.
Specifically, the SEC order approves the applications from various exchanges to list eight different ether funds. The order technically does not approve the funds themselves or set a date for the ETFs to begin trading.
Ether ETFs are expected to be smaller, at least initially, than their Bitcoin counterparts. The Grayscale Ethereum Trust currently has about $11 billion in assets, much smaller than what the company’s bitcoin fund was before its conversion.
The approval of ether ETFs is a sign that the SEC’s stance on cryptocurrencies may be weakening after a series of legal battles. The agency lost a case against Grayscale in 2023 which spurred the approval of bitcoin products.
The SEC’s push to regulate cryptocurrencies has also come under 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 currency alongside bitcoin, although its value proposition is markedly different. While bitcoin is seen primarily as a long-term store of value, an investment in ether is considered more like an investment in early-stage technology. The Ether token powers the Ethereum network, which powers several applications, such as decentralized finance (DeFi) projects, non-fungible tokens (NFTs), or the tokenization of real-world assets such as commodities, stocks, art, real estate, and more.
The requests approved Thursday do not apply to other crypto projects on the Ethereum network, said Richard Kerr, partner at law firm K&L Gates.
“If and when an Ethereum product is approved, it will 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 is a way for investors to earn interest on their ether holdings by locking tokens on the network for a period of time, although ether ETFs in the US may not participate. The SEC said in lawsuits against Coinbase and Kraken that staking-as-a-service offerings are unregistered securities. Ark, Fidelity and Grayscale updated their documents this month to remove staking from their proposals.
The lack of staking in ETF products is another reason why 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 inflows into bitcoin ETFs, and there are some structural differences in the product that make it less attractive overall,” Lubka said.