SEC’s New Requirement for Ethereum-Based ETFs Unveiled

The U.S. Securities and Exchange Commission (SEC) has requested companies to update form 19b-4 in their applications for launching spot Ethereum ETFs, according to CoinDesk, citing sources. 

The Wall Street Journal also reported on the regulator’s demand for amendments to the documents in an “expedited manner.”  

However, the SEC’s actions do not guarantee that spot ETH-ETFs will be approved in May. Potential issuers must approve form S-1 before launching the instrument. 

According to insiders, one issuing company stated it might be on the right track for approval, unlike a few weeks ago when there was no dialogue with the SEC. 

Bloomberg analysts Eric Balchunas and James Seyffart have increased their odds of spot Ethereum ETF approval from 25% to 75% following news that the SEC might take a more favorable stance on the product.

Update: @JSeyff and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they’d be denied). See… https://t.co/gcxgYHz3om

— Eric Balchunas (@EricBalchunas) May 20, 2024

“Technically, the Commission could approve 19b-4 and then slowly play out S-1 (especially given the report of no interaction [with issuers]),” noted ETF Store President Nate Geraci. 

The agency is currently conducting an investigation to determine if Ethereum is a security.

Galaxy Research’s Alex Thorn noted that the SEC might attempt to find a “middle ground” by categorizing Ethereum into two types—non-security and staked, which fits the definition. 

if the speculation about a 180 from SEC on the ethereum ETFs is true, i would guess they try to thread a needle between “ETH” NOT being a security and “staked ETH” (or even more flimsily, “staking as a service ETH”) as BEING a security.

that would be somewhat congruent with…

— Alex Thorn (@intangiblecoins) May 21, 2024

“This would somewhat align with their various lawsuits and reports in some investigations and might allow the SEC to approve an ETH-ETF while maintaining their previously stated controversial opinions,” he added. 

According to Variant Fund CLO Jake Chervinsky, the approval of Ethereum funds “would be a shock to those close to the process in Washington.” 

If the spot ETH ETF is approved, it will be a true shock to everyone I know in DC who’s close to this process.

That doesn’t mean it won’t happen.

It means approval could signal a major shift in US crypto policy after the SAB 121 vote, perhaps more important than the ETF itself. https://t.co/ru0iD0GJIC

— Jake Chervinsky (@jchervinsky) May 20, 2024

“Approval could signal a major shift in US crypto policy after the SAB 121 vote, perhaps more important than the ETFs themselves,” he believes. 

Dragonfly Managing Partner Haseeb Qureshi is convinced that President Joe Biden intends to soften his stance on cryptocurrencies ahead of the elections to avoid losing votes.

Amid news of renewed dialogue between issuers and the SEC, the price of Ethereum surged to $3655—a 20% increase in a day. 

Previously, Coinbase analyst David Han stated that the approval of an Ethereum ETF is a matter of time. According to the expert, the rationale used for approving a Bitcoin ETF is applicable to the instrument based on the second-largest cryptocurrency by market capitalization.

Attorney Scott Johnson stated that the SEC is examining grounds for rejecting spot Ethereum ETF applications. One of these could be assigning the asset the status of a security.

On May 23, the deadline for proposals from VanEck and Grayscale will arrive, as reported.