The SEC has opened comments on Grayscale, Fidelity and Bitwise’s applications to launch spot Ethereum exchange-traded funds (ETFs).
The notices apply to proposed rule changes that will allow two exchanges – Cboe BZX and NYSE Arca – to list and trade the shares of the three funds.
Comments are accepted 21 days after publication in the Federal Register.
This stage is a routine procedure in the ETF approval process and mirrors the approach taken for spot Bitcoin ETF applications, which previously encouraged feedback from US citizens and organizations.
Market correlations are critical
Each notice discusses matters that are expected to impact the SEC when it comes time to approve or reject the proposed spot Ethereum ETFs.
Most importantly, the communications discuss the correlations between ETH futures and ETH spot markets and whether the spot ETH market is of significant size relative to the futures ETH market. The correlation is relevant because the SEC has previously approved ETH ETFs for futures.
NYSE Arca and Grayscale cited an analysis from Coinbase that shows the correlation and shows that fraud and manipulation are unlikely in the spot ETH market. The two companies also said that the Investment Company Act of 1940 does not provide relevant protections that should lead to the denial of certain spot crypto ETFs, contrary to the SEC’s claims.
Cboe and Fidelity claimed that their proposal and analysis prove that the spot ETH market is of relevant size. NYSE Arca and Bitwise have cited their own analysis to this effect.
The notices also seek comment on other issues such as fund management, creation and redemption models and sponsorship fees. Requests for comment are routine and do not indicate whether a fund is likely to receive approval.
Ethereum ETFs
The call for comment comes after a history of delayed decisions from the SEC on spot Ethereum ETFs. The involvement of high-profile fund managers such as Grayscale, Fidelity and Bitwise highlights the importance and growing interest in cryptocurrency-based financial products among traditional investment firms.
This initiative by the three fund managers aims to create a spot ETH ETF, allowing investors to buy shares that reflect the price of Ethereum. Following the SEC’s approval of 11 Bitcoin ETFs in January, which have since seen significant inflows and popularity, there is a strong push to obtain similar regulatory green lights for Ethereum-based products.
Notably, Coinbase held discussions with the SEC last week regarding Grayscale’s Ethereum ETF proposal. Grayscale wants to transform its existing Ethereum Trust into a spot ETH ETF, a move that Coinbase publicly supported in a recent presentation to the regulator.
The push for Ethereum ETFs stems from changing market sentiments. While the SEC’s approval of spot Bitcoin ETFs marked a significant milestone, analysts remain divided on the prospects for Ethereum ETFs.
Some speculate that the SEC could delay approval to create a temporary separation between Bitcoin and Ethereum products. Still, entities like Standard Chartered have expressed optimism ahead of SEC approval in May.
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