- Coinbase presented arguments for converting Grayscale’s Ethereum Trust into a spot ETF.
- SEC representatives showed little enthusiasm during the discussion.
- Bloomberg and FOX Business see this as reducing the likelihood of product approval in May.
Representatives from Grayscale and Coinbase discussed with the SEC the rule changes necessary to launch an ETF based on the second-largest cryptocurrency by market capitalization. Progress on this issue is essential for converting the ETHE into an exchange-traded fund.
According to Grayscale, the assets under management for the instrument amount to $11.65 billion. The trust’s shares closed trading on March 8 at a discount of 8.2% relative to NAV.
The meeting took place on March 6, following the regulator’s extension of the review period for BlackRock and Fidelity’s applications to launch a spot Ethereum-ETF. Participants discussed the Commission’s concerns about potential market manipulation if a positive verdict is reached.
Coinbase’s Arguments
According to the presentation, Coinbase listed five reasons:
- ETHE shares are correctly classified as commodity-based trust shares;
- The second-largest cryptocurrency has mechanisms that significantly limit its susceptibility to fraud and manipulation;
- The SEC’s reasoning for approving spot Bitcoin-ETFs applies equally or more to Ethereum;
- As with digital gold-based ETFs, agreements with the CME for joint surveillance will help identify instances of fraud and manipulation;
- Spot Ethereum markets are highly resistant to such practices.
Nate Geraci, President of ETF Store, highlighted the last point. He noted that Coinbase’s analysis showed a strong correlation between spot and futures markets, similar to Bitcoin.
Coinbase analysis shows correlation b/w ether futures & spot markets every bit as strong as w/ bitcoin markets…
Add-in that SEC approved CME-traded ether futures ETFs and I’m not sure what grounds for disapproval of spot ether ETFs would be.
— Nate Geraci (@NateGeraci) March 8, 2024
“Considering that the SEC approved futures Ethereum-ETFs on CME, I don’t know what grounds there could be for denying spot exchange-traded funds,” concluded the expert.
No Cause for Optimism?
According to Bloomberg analyst Eric Balchunas, asset managers remain in the dark about regulators’ views on cryptocurrency investment mechanisms.
Normally I’d say this was good sign but as far as I know the Staff has not given any comments yet to the issuers, which is not a good sign as we past when they gave comments on btc ETFs. Further, there’s no court loss hovering over. And the correlations bt futures and spot isn’t… https://t.co/AVMhL1QKGf
— Eric Balchunas (@EricBalchunas) March 8, 2024
“In another situation, I would say this is a good sign. But, as far as I know, the staff has not yet given any comments to the issuers. And they did during the discussion of spot Bitcoin-ETFs,” emphasized the observer.
Fox Business journalist Eleanor Terrett agrees with Balchunas. She noted that optimism regarding the approval of spot Ethereum-ETFs is “waning.”
?SCOOP: Optimism about the @SECGov approving the $ETH spot ETFs by May 23rd is waning.
Based on my conversations with people familiar, meetings in recent weeks have been very much one sided, with issuers and custodians trying to rally SEC staff to get the process rolling, but…
— Eleanor Terrett (@EleanorTerrett) March 10, 2024
“Based on my conversations with insiders, meetings in recent weeks have been largely one-sided. Issuers and custodians tried to push SEC staff to start the approval process, but the latter did not actively participate in the discussions, as was the case with spot Bitcoin-ETF applications. I was told that [SEC Chair Gary] Gensler believes he has already appeased the industry by registering digital gold-based products,” she explained.
Reasons for the SEC’s Stance
Terrett mentioned pressure from Senator Elizabeth Warren on the SEC chair. She noted that Warren was shocked by the approval of spot exchange-traded funds based on the first cryptocurrency.
The journalist pointed out that there are just over two months left until the final decision deadline for the Ethereum-ETF on May 23.
In January, Terrett predicted that the SEC would move towards a more detailed examination of applications from issuers, which could be a signal of a positive decision in the future. At that time, Commissioner Hester Peirce expressed hope that the product would not require a court case [Grayscale vs. the agency regarding ETHE] for approval.
On March 8, Gensler declined to comment on expectations of possible approval of spot Ethereum-ETFs in May. He only confirmed that the Commission is reviewing the applications.
Prior to the registration of spot Bitcoin-ETFs, several meetings were held between the SEC and the GBTC issuer.
Besides Grayscale, BlackRock, and Fidelity, other participants in the race for Ethereum-based exchange products include Franklin Templeton, VanEck, and Invesco with Galaxy.
Some experts believe that the regulator will register the instruments in May. However, a group of analysts doubts this for various reasons.