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Ethereum ETFs Awaiting SEC Decision This Week

US Securities and Exchange Commission (SEC) prepares to announce its decision on VanEck’s spot ETH
May 22, 2024

The cryptocurrency world is on edge as May 23 approaches, the day the US Securities and Exchange Commission (SEC) is expected to announce its decision on VanEck’s spot ETH exchange-traded fund (ETF) application. Following closely on May 24, the SEC will also reveal its decision on ARK 21Shares’ application.

Alongside VanEck, six other major players, including Ark Investment, Franklin Templeton, Invesco Galaxy, and BlackRock, have submitted their applications, though Grayscale notably withdrew its submission at the start of May. The approval of Ethereum ETFs could usher in a wave of institutional investment, enhancing market liquidity and potentially stabilizing prices, making Ether a more attractive option for investors. As ETF providers buy up more cryptocurrency to meet demand, the market price of ETH might see a significant rise, akin to Bitcoin’s surge in January 2024.

Historically, the chances of approval for such ETFs were considered slim, with Bloomberg’s ETF analyst Eric Balchunas noting their unlikelihood. However, recent developments suggest a shift in this perspective. On Monday, Balchunas reported an increase in the likelihood of approval to 75%, hinting at a possible change in the SEC's stance.

Adding to the speculation, the SEC has been urging exchanges to expedite their 19b-4 filings, indicating a potential readiness to approve these applications before a critical deadline, according to CoinDesk.

Amid these rumors, Ether’s price has surged, moving from $3,000 to $3,560, and currently trades around $3,700.

One of the key regulatory concerns revolves around whether Ether or staking ETH should be classified as a security or a commodity. This distinction significantly affects regulatory oversight. Commodities and currencies, such as Bitcoin and gold, face different rules compared to securities, which are subject to more stringent regulations due to their investment nature.

Past activities related to ETH staking have been classified as securities, creating ambiguity about the status of native ETH staking and restaking activities. Nitin Gaur, Managing Director at State Street Digital, highlighted this ongoing debate, which has also led ARK and 21Shares to amend their ETF applications to exclude staking information, likely to sidestep regulatory hurdles.

The political landscape could also play a crucial role in the fate of Ethereum ETFs. With the upcoming US elections, a potential change in administration could shift regulatory attitudes towards cryptocurrencies. For instance, a victory by Donald Trump could lead to a more crypto-friendly SEC leadership, replacing the current chair, Gary Gensler. Legislative changes might also clarify the regulatory status of digital assets, which could benefit the broader Ethereum ecosystem, including wallets and DeFi protocols.

Analysts at JPMorgan, led by Nikolaos Panigirtzoglou, have suggested that the SEC’s potential denial of spot Ethereum ETFs could mirror the legal battles seen with Bitcoin ETFs, which the SEC eventually lost. They even proposed the possibility of Ethereum being classified into a new category, neither fully a commodity nor a security.

Should the SEC deny the ETF applications, market volatility is expected. However, Gaur noted that market expectations might already account for this possibility, minimizing the impact. He also pointed out that Hong Kong’s recent approval of the ETH Spot ETF did not significantly influence prices, suggesting other factors at play, such as utility and competition from other chains like Solana.

As the SEC’s decision looms, the cryptocurrency community remains on high alert, aware that the approval or denial of these ETFs could significantly influence the market dynamics and the future trajectory of Ethereum.

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