ETFs
SEC Gives Green Light to Exchanges to List Ether ETFs, But Still Must Approve Fund Manager Filings
Regulators have given the green light to the NYSE and Nasdaq to list eight exchange-traded funds that hold ether (ETH-USD), but they have still not given their approval to fund managers wishing to issue the new products.
The Securities and Exchange Commission’s decision is the first major step toward allowing ETFs to trade. The SEC will need to approve fund managers’ Form S-1s — filings required to publicly offer new securities — before actual funds can begin trading.
The regulator gave no indication of when this would happen.
ETFs could make ether a potential building block in 401(k), IRAs and retirement plans and grant the digital asset greater acceptance.
The SEC’s decision comes about four months after it gave fund managers permission to list ETFs that invest directly in bitcoin (BTC-USD), the largest cryptocurrency in the world.
The cohort seeking approval for ether ETFs includes some of the biggest names on Wall Street, from BlackRock (BLACK), Fidelity and Franklin Templeton to a number of better-known companies in the crypto world, such as Grayscale, Bitwise and Hashdex.
BlackRock headquarters in New York. It is the largest fund manager in the world. (Leonardo Munoz/VIEWpress) (VIEW press via Getty Images)
The price of Ether rose this week as investor enthusiasm for the Ether ETF approvals grew. It fell 2% as of 4 p.m. Eastern on Thursday before rebounding in the hour before the SEC release. The digital asset is still up more than 50% year to date, outperforming bitcoin.
The development is the latest example of some success for the crypto industry in Washington, which is pushing for friendlier regulations and greater freedom to launch new products.
The U.S. House of Representatives on Wednesday voted in favor of a bill that would reduce the SEC’s influence over crypto and establish the Commodity Futures Trading Commission (CFTC) as crypto’s primary regulator.
This bill must still be passed by the Senate. The White House said Wednesday that it opposed the bill “in its current form” but hoped to establish new rules for the industry.
“The Administration looks forward to continuing to work with Congress on developing digital asset legislation that includes adequate safeguards for consumers and investors while creating the conditions necessary for innovation, and additional time will be required for such collaboration,” the White House said.
Matt Hougan, Bitwise’s chief investment officer, told Yahoo Finance before the SEC announced its exchange approvals that he had noticed “a real sea change in Washington around crypto.”
“It seems like Washington understands that crypto is good for America and is popular with American voters,” he added.
The story continues
The irony of the approvals announced Thursday is that they come from an agency that has long been an enemy of the industry through enforcement actions and lawsuits targeting some of the biggest players.
And for years, the SEC has refused requests to create spot ETFs tied directly to cryptocurrencies.
A key development that changed the SEC’s calculus occurred last August when one of the ETF applicants, Grayscale, won a key legal victory against the SEC.
Grayscale had sued the SEC in 2022 after it was not allowed to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin offer.
His main argument was that the agency had already approved exchange-traded products containing Bitcoin futures and had therefore “acted arbitrarily and capriciously.”
A three-judge panel of the District of Columbia Court of Appeals in Washington sided with Grayscale, saying the company had “advanced substantial evidence” that its product was similar to Bitcoin futures ETFs previously approved by the SEC.
SEC Chairman Gary Gensler. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)
This forced the SEC to reconsider Grayscale’s spot Bitcoin ETF application, as well as others filed by rival fund managers.
When the SEC approved Bitcoin products in January, SEC Chairman Gary Gensler made clear that his agency “neither approves nor approves of Bitcoin” and called the decision “the most sustainable path forward » after the key legal defeat.
Gensler mentioned this turning point again during a speech he gave Thursday morning in Washington, saying “after probably two dozen orders from the Commission, the D.C. Circuit took a different view and we took that into consideration and pivoted.”
Signs that approvals could be imminent for ether ETFs intensified this week when SEC staff began sending comments to exchanges that planned to list the products, including Nasdaq and CBOE.
One of the clear requests the agency made to applicants was to revise their products so that ether held by the issuer cannot be staked for additional yield.
Ether has a market capitalization of over $450 billion, which represents around 18% of the total crypto market value, according to CoinMarketCap. The cryptocurrency is the native coin of the Ethereum blockchain.
Unlike bitcoin, its blockchain uses a verification and governance structure known as proof of work. This means that instead of mining cryptocurrencies, Ethereum transactions are verified by users who deposit their ether in exchange for returns in a process called staking. Ether has not yet been qualified as a non-security asset by the SEC.
For the crypto market, the implication of the approval is that “people will start betting on which crypto asset will be the next ETF,” according to Sean Farrell, head of crypto strategy at Fundstrat.
“I am certain that there will now be criteria that can be met by others [crypto] assets and if these criteria are met, there is now precedent that an ETF can be brought to market,” Farrell added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas of finance.
Click here for in-depth analysis of the latest stock market news and events that move stock prices..
Read the latest financial and business news from Yahoo Finance