SEC Approves Spot Ethereum ETFs: Key Developments

On May 23, the U.S. Securities and Exchange Commission (SEC) approved 19b-4 applications from issuers of spot exchange-traded funds based on Ethereum.

The companies receiving approval include VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK Invest/21Shares, Invesco/Galaxy, and Bitwise.

However, the regulator did not grant permission for Hashdex, whose application deadline expires on May 30.

Trading will commence once the SEC signs the registration statements on Form S-1.

In anticipation of the approval, the ETH price surged to $3900, but by the time of writing, it had fallen to $3680.

According to Coinglass, amid increased volatility, the market’s liquidation volume reached $382 million in a day — the highest since early May. The majority ($149 million) was in Ethereum longs.

Community Reaction

Bloomberg exchange analyst James Seyffart was among the first to comment on the approval.

BOOM!! APPROVED! There it is. The SEC just approved spot #Ethereum ETFs. What a turn of events. It’s really happening.

h/t @PhoenixTrades_ pic.twitter.com/KQ39mDyCbT

— James Seyffart (@JSeyff) May 23, 2024

“For clarity: this doesn’t mean [ETFs] will start trading tomorrow. This is just the 19b-4 approval. S-1 documents also need to be approved, which will take time. We expect this to take a couple of weeks, but it could be longer,” he wrote.

Matthew Sigel, head of digital asset research at VanEck, expressed confidence in a positive future for the industry.

We are so thrilled to confirm that the SEC has approved, pursuant to Section 19(b) of the Securities Exchange Act of 1934, our exchange partner CBOE’s proposed rule change to list and trade a @vaneck_us spot #Ethereum ETF on the CBOE! ??

TLDR: We expect the improved political… pic.twitter.com/o6ZbFWKExi

— matthew sigel, recovering CFA (@matthew_sigel) May 23, 2024

“The improved political environment will lead to further victories for investors and digital asset developers through new laws and projects that attract investments in Bitcoin, Ethereum, and other open-source software,” added the top manager.

Representatives of the management company Bitwise called the approval of spot ETH-ETFs a “historic step that will draw attention to the second-largest crypto asset.”

It’s official: Investors are one step closer to a spot Ethereum ETF.

Today, the SEC approved the NYSE’s 19b-4 filing for Bitwise’s first-ever spot Ethereum ETF. It’s a historic move that puts the spotlight on the second-largest crypto asset. At Bitwise, our mission is to help… pic.twitter.com/hjgsrdgQtd

— Bitwise (@BitwiseInvest) May 23, 2024

Not a Security

Industry experts view the approval of Ethereum-based exchange-traded funds as an “implicit acknowledgment” by the Commission that the asset is not a security. On the Bankless podcast, Seyffart explained this position.

“These are trust shares based on commodities, so by approving them, the SEC is explicitly stating that it does not intend to apply the definition of a security to ETH,” he clarified.

Digital asset lawyer Justin Brauder believes that if Ethereum-ETFs receive S-1 approval, “the debate will end — Ether is not a security.”

Adam Cochran, a partner at venture firm Cinneamhain Ventures, looked even further. In his view, such a “mindset” of the regulator could extend to tokens of other projects.

By the way, the most important things here isn’t the ETF, it’s:

-Total change in stance by admin, that forces Gensler to concede.

-ETH is a commodity, even with its current attributes.

-That means we can extrapolate to *A LOT* of other projects what elements matter in security… https://t.co/rFhhtoA2NK

— Adam Cochran (adamscochran.eth) (@adamscochran) May 23, 2024

“ETH is a commodity, even with its current attributes. This means we can apply this to a multitude of other projects, determining which elements matter for security. Today, many things have likely become commodities, even if some are not yet aware of it,” the expert emphasized.

However, some experts noted that the SEC may still pursue industry participants involved with Ethereum.

“[The agency] will try to thread this needle and say that they do not intend to call ETH itself a security, but an asset locked in staking might be a security. […] I do not believe they are going to do this anytime soon,” added Seyffart.

Notably, the decision to launch Ethereum funds was made by the SEC’s Division of Trading and Markets, rather than Chairman Gary Gensler and four other senior officials.

“For the Commission by the Division of Trading and Markets pursuant to delegated authority,” the order states.

Seyffart called the agency’s decision to use delegated authority normal. According to him, this is usually “how things are done.”

On May 23, the lower house of the U.S. Congress passed a bill on the structure of the crypto market, known as FIT21, aimed at regulating the industry as a whole. The document defines the powers of the SEC and the CFTC in overseeing the sector.