Regulation
Weak Correlation and Security Issues Hinder Ethereum Spot ETFs
As the U.S. Securities and Exchange Commission (SEC) nears a decision on Ethereum spot exchange traded funds (ETFs), skepticism is growing among cryptocurrency industry experts. Highlight concerns over complex links between Ethereum (ETH) futures spot and potential markets safety problems.
This skepticism clouds the prospects for regulatory approval of these ETFs.
Potential SEC Obstacles to Approving Ethereum Spot ETFs
Nate Geraci, President of the ETF Store, highlighted the need for SEC approval on both the 19b-4 trading rule change and an S-1 registration statement for any ETF launch. However, the process may experience delays, especially in S-1 approvals, even if 19b-4 gets approval.
In a separate discussion, James Seyffart, ETF analyst at Bloomberg Intelligence, expressed strong doubts about the approval of Ethereum spot ETFs. He pointed to the weak correlations between futures and spot markets seen in 2021.
To know more: Ethereum ETF Explained: What It Is and How It Works
“Overall, I think it’s going to be something somewhat objective that will just kick the can down the road. […] If I had to guess, I would say correlations. Targeting primarily futures and spot correlations from 2021, which were quite weak on 1-minute and 5-minute timeframes,” Seyffart She said.
Seyffart further explained the SEC’s possibility by stating that “the futures market has not been sufficient over a 3-year period to detect fraud and manipulation in the spot market.” It’s important to note that the agency got the same argument sued by digital asset management giant Grayscale.
However, Seyffart stressed that this is just a complete hypothesis. He said a better timeline will be revealed “when we see these 19b-4 orders and the SEC’s official correlation analysis data.”
Proof of Stake mechanism and complexity of staking
Additionally, security classification concerns are another significant barrier. Scott Johnson, general partner at Van Buren Capital, pointed out that The SEC is considering treating Ethereum as a security in the ETF’s next spot order.
Current law requires the SEC to provide “notification of reasons for disapproval under consideration.” This question mentioned has been asked and noted in all Ethereum documents. However, Johnson believes the SEC never asked such questions when introducing a Bitcoin ETF.
“The obvious purpose is to potentially deny on the basis that these spot documents are improperly filed as commodity-based trust shares and do not qualify if they hold a security,” Johnson She said.
David Han, institutional research analyst at Coinbase, added another level of complexity to the debate. In a recent report, he highlights the differences between Bitcoin work test (PoW) and Ethereum betting test (PoS) mechanisms.
You mentioned the the regulatory environment for asset staking remains unclear, especially for Ethereum spot ETFs that allow staking. Han argued that risks associated with staking, such as denomination conditions, changes in validator customers, fee structures and liquidity issues, make it unlikely that the SEC will approve Ethereum spot ETFs soon.
To know more: How to invest in Ethereum ETFs?
This perspective is in line with recent adjustments by ARK Invest and 21Shares. Firms have reportedly amended their Ethereum spot ETF application to remove staking clauses. Initially, the goal was to target the Ethereum (ETH) held by the company, which would be considered income for the fund.
THE The SEC’s upcoming deadlines for responding to locate Ethereum ETF requests from VanEck and ARK Invest are on May 23 and 24, respectively. While the SEC deliberates, the crypto community is watching closely. They are eager to see whether the SEC addresses these hurdles or further delays the introduction of Ethereum spot ETFs to the market.
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