According to a recent report by Reuters, the U.S. Securities and Exchange Commission (SEC) appears ready to reject multiple applications for Ethereum ETFs (exchange-traded funds). In recent weeks, discussions between U.S. issuers and the SEC have leaned towards a negative outcome.
Major players in the market, including VanEck and ARK Investment Management, along with seven other issuers, are facing significant obstacles as the SEC scrutinizes their proposals to track the spot price of Ethereum.
The recent interactions between ETF issuers and SEC officials have been disappointing for the issuers. These discussions have lacked engagement and detailed questioning that characterized earlier meetings, particularly those leading to the approval of Bitcoin spot ETFs.
Four individuals involved in the talks, who wished to remain anonymous, described the meetings as one-sided, with little to no substantive feedback from SEC staff on the proposals.
This shift in the SEC’s approach is particularly noteworthy considering the background of the agency’s chair, Gary Gensler, a well-known skeptic of cryptocurrencies. His leadership has seen resistance to spot Bitcoin ETFs, citing concerns about market manipulation.
However, there seemed to be a change in tide with the approval of Bitcoin spot ETFs, following a successful court challenge by Grayscale Investments. This approval had given hope to issuers that Ethereum products might also be approved.
Despite issuers’ attempts to align their Ethereum ETF proposals with the previously approved Bitcoin and Ethereum futures-based ETFs, SEC staff have largely been unresponsive. This has led issuers to expect that the SEC will ultimately reject these Ethereum spot ETF applications.
The potential denial is not just a procedural setback but also has implications for Ethereum’s market performance. Hong Fang, president of crypto exchange OKX, noted that Ethereum’s price has underperformed compared to Bitcoin, which has seen a 51% increase this year. Market anticipation of a negative ruling from the SEC has added downward pressure on Ethereum prices.
In response to the anticipated rejections, some issuers have expressed their intention to submit additional disclosures to the SEC. They hope to keep the dialogue open and address any concerns that may be influencing the SEC’s apprehensions.
So far, the only disclosed meeting involved crypto exchange Coinbase, focusing on Grayscale’s attempt to convert its Ethereum Trust into an ETF. The arguments presented in these meetings emphasized the high correlation between Ethereum futures and spot markets, similar to the logic that secured the approval of Bitcoin spot ETFs.
However, skepticism remains high within the SEC regarding the depth and quality of market data for Ethereum compared to the more established Bitcoin futures market. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, suggested that the SEC’s reluctance may be due to a desire for more comprehensive data to validate the maturity and stability of the market.
The ongoing uncertainty and the SEC’s hesitancy to move forward with Ethereum ETFs may potentially lead to further legal challenges, similar to those faced by Bitcoin ETF proposals in the past. Industry insiders remain hopeful yet cautious, acknowledging that approval may require additional litigation or a significant change in the SEC’s stance on cryptocurrency-related products.