ETFs
Why Spot Ether ETFs will likely have to wait until after the presidential election to be approved
Grayscale’s withdrawal of its ether futures ETF application likely dealt a major blow to the fund’s approval prospects, analysts say.
Crypto investment giant Grayscale Investments surprisingly pulled its spot ether ETF application this week.
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Posted May 9, 2024 at 6:59 PM EST.
Ethereum spot exchange-traded funds, or ETFs, are facing a tough month.
Final decisions on the first generation of ETF applications are expected at the end of May and are expected to be largely rejected. Meanwhile, crypto investment giant Grayscale Investments is surprising withdrew its Ethereum futures ETF app this week.
The pending decisions follow months of delays by the Securities and Exchange Commission (SEC), the regulatory authority that governs ETFs, which are a collection of assets traded on an exchange.
The next generation?
“I do not think so [an approval is] It’s happening – I absolutely don’t think it’s happening in May,” said James Seyffart, an ETF analyst at Bloomberg, who accurately predicted that the SEC would approve several Bitcoin spot ETFs on January 10.
The SEC is generally not fond of cryptocurrency-based ETFs. It took more than 10 years before the Commission finally approved the first Bitcoin spot ETFs.
These delays in approving investments in the spot market contrast with futures ETFs, which already exist for bitcoin and ether. The SEC’s logic is that the underlying spot markets – cryptocurrency exchanges – are not actively regulated. Meanwhile, futures exchanges such as the Chicago CME, which is the largest market for Bitcoin futures in the United States, are regulated by the Commodity Futures Trading Commission.
Learn more: There are now 11 Spot Bitcoin ETFs. Here is the one that suits you best
The SEC is the obstacle to any future crypto ETF offerings. And analysts see no signs that any of these new competitors will get the green light any time soon.
Confusion of the trial
When it comes to approving the Bitcoin spot ETF, more important than the arguments or appeals made in any of the applications might have been a lawsuit from Grayscale, one of the applicants, who ran the massive Grayscale Bitcoin Trust which they spent years trying to turn into an ETF.
Grayscale won, with the judge supporting his argument that the SEC’s stonewalling was a violation of the Administrative Procedure Act. The SEC then approved not only their ETF, but a whole host of new entrants, including Fidelity and BlackRock, along with SEC Chairman Gary Gensler. in writing in no uncertain terms that his hand had been forced.
But as a result of this costly lawsuit, Grayscale lost a huge proportion of its market share to competitors who charged significantly lower annual fees.
Grayscale’s recent withdrawal of its application for an ether futures ETF is therefore a hard blow for all candidates.
Read more: Hong Kong Does Not Define Ether as a Security, Issuer Says as Spot Crypto ETFs Go Live
Michael Sonnenshein, CEO of Grayscale, spoke at a event in London on Wednesday and said the withdrawal was part of a renewed interest in spot products, which are indeed a much larger market than futures ETFs.
Another ETF analyst at Bloomberg, Eric Balchunas, said he saw the move as a picture of Grayscale “taking the bullet and going home” this time around.
“Honestly, if I were them, I don’t know if I would foot this bill either,” Seyffart said, referring to the legal costs of fighting the SEC. “We can thank Grayscale and almost Grayscale only for the fact that the SEC approved a Bitcoin spot ETF, and the biggest beneficiaries subsequently were BlackRock and Fidelity.”
Read more: Should you sell Ether before the SEC’s planned rejection of a Spot Ether ETF on May 23?
None of the other contenders for a spot Ether ETF seem to have the same willingness to fight the SEC.
“Everyone owns a bunch of ETFs and they [worked] with the SEC for years and they don’t want to upset them. Grayscale was kind of coming in as an outsider and didn’t have that. They just had less to lose,” Balchunas said.
The electoral variable
Barring a lawsuit from another well-funded entity, analysts see no change between now and the November election, especially since the SEC would not need to respond to a new round of requests for here there.
“If Gensler is out and all of a sudden there is a Republican commissioner, that can only be positive for the approval of an ETH ETF,” Seyffart said. “Even if Biden wins, my view is that Gensler will be gone within a year. »
“I think we might have one or two scenarios. I don’t think a lawsuit is part of it in the short term,” Balchunas said. “I think [the SEC] denies. We see why. And then we wait for the elections.
“If the [Republicans] win, they immediately file some documents and see if the new administration will approve them,” Balchunas continued. “And then, if it’s the same administration, then they decide what to do from there.” Maybe they filed a new batch of cases and tried to correct the denial. But in either case it’s a year [before approvals].”
CORRECTION (May 9, 8:23 p.m. ET): A previous version of this story referred to Grayscale withdrawing its request for an ether spot ETF, rather than an ether futures ETF. We regret the error.