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The US Securities and Exchange Commission (SEC) has approved the first spot Ethereum exchange-traded funds (ETFs), marking a significant milestone for the crypto industry. The decision, announced today, allows asset managers such as Grayscale, Fidelity, and Bitwise to launch ETFs that directly track the price of Ethereum (ETH).
Ethereum rose XX% on the news, trading at XXXX as of press time.
The approval follows a rigorous application process and extensive market analysis. Grayscale’s Chief Legal Officer, Craig Salm, previously highlighted that the SEC had already addressed key issues during the approval of spot Bitcoin ETFs, which are applicable to Ethereum ETFs as well. These issues include creation and redemption processes, cash versus in-kind transactions, and custody concerns. Salm emphasized that the SEC’s prior engagement with Bitcoin ETF issuers laid the groundwork for Ethereum ETFs, noting the strong correlation between ETH futures and spot prices as a compelling factor for approval.
The SEC’s decision comes after a period of uncertainty and skepticism among market analysts. Bloomberg analyst Eric Balchunas had previously estimated a 25% chance of approval by May 23, citing the SEC’s lack of engagement compared to the Bitcoin ETF approval process. However, the approval of spot Bitcoin ETFs earlier this year, Hong Kong’s ETH ETF approval, and recent crypto wins in Congress had raised hopes among crypto proponents despite the SEC’s historically cautious stance under Gary Gensler’s leadership.
The approval process included a public comment period, during which the SEC sought feedback on various aspects of the proposed ETFs, including custodianship of funds, creation, and redemption models, and sponsor fees. This phase mirrored the approach taken with spot Bitcoin ETF applications, encouraging feedback from US citizens and organizations.
The approval of spot Ethereum ETFs is expected to have a significant impact on the digital assets market. Hong Fang, president of crypto exchange OKX, noted that while Ethereum’s price has risen this year, it has lagged behind Bitcoin’s gains, a disparity likely influenced by market anticipation of the SEC’s decision. The approval is anticipated to boost investor confidence and increase market liquidity.
Several issuers filed applications to list their ETF on the NYSE Arca exchange, with Coinbase Custody serving as the custodian. Bitwise’s analysis demonstrated a strong correlation between the ETH spot market and the CME ETH futures market, a critical factor in meeting SEC requirements to monitor potential market manipulation.
Despite the positive outcome, some industry insiders had expressed concerns about the SEC’s approach. Participants in recent meetings with the SEC described the talks as one-sided, with agency staff withholding substantive comments on the proposals. This contrasted with the detailed discussions that preceded the SEC’s approval of spot Bitcoin ETFs.
The approval also comes amid ongoing regulatory scrutiny of Ethereum’s classification as either a security or a commodity. Reports suggest that the SEC is investigating Ethereum’s regulatory classification, which added uncertainty to the approval prospects. However, today’s decision indicates a favorable stance towards Ethereum-based financial products and a potential indication that Ethereum can be considered a commodity.
The approval is a landmark event for the crypto industry, reflecting the growing interest in crypto-asset financial products among traditional investment firms. As the market reacts to this development, stakeholders will closely monitor the performance and impact of these newly approved ETFs.