The US SEC has approved applications from Nasdaq, the Chicago Board Options Exchange and the New York Stock Exchange to list exchange-traded funds (ETFs) tied to the price of ether, potentially setting the products up to begin trading later this year.
This only means applications to the exchanges were granted; the ETF issuers themselves also have to be approved to start selling them before the products can launch. But Thursday’s approval is a big move forward and a surprise win for those firms and the cryptocurrency industry. The SEC appears to have begun engaging with the would-be issuers themselves, as companies like Fidelity and Grayscale filed updated S-1 forms this week.
Why the decision has been made now
SEC Chair Gary Gensler mentioned why his agency was greenlighting the spot bitcoin ETF earlier this year, pointing to the DC Circuit Court of Appeals decision rejecting the SEC’s approach toward spot bitcoin ETFs last August. In that case, crypto fund manager Grayscale won an appeal against the SEC to convert its bitcoin fund into a spot ETF in a high-profile case.
Gensler also reiterated Thursday that the SEC would keep working on its opposition to the crypto bill known as FIT21 that passed the House of Representatives on Wednesday.
“We’ll continue to engage,” he said. “It’s just a field where the token operators – without prejudging any one of them – aren’t making the disclosures that investors really could benefit from and are required by law.”
And when asked about Congress seeking to reverse his agency’s crypto accounting policy with the new crypto bill, Gensler argued that the agency meant it as guidance at a time when failing crypto firms were having to treat customer assets the same as their own in bankruptcy.
“The crypto that these companies have said they took as custody actually became part of the bankruptcy estate,” Gensler said. “That’s what we were addressing back in 2022,” he added, saying it was “just” an accounting bulletin.
How the timeline pans out
Regulators must approve two types of filings before shares of spot ether ETFs can be transacted: 19b-4s, or proposed rule change forms, and S-1s, or registration statements.
For spot ether ETFs, the timeline between the decision-making on those two groups of filings will likely take weeks or months, not days, unlike with the spot bitcoin ETF filings.
“It’s just a field where the token operators – without prejudging any one of them – aren’t making the disclosures that investors really could benefit from and are required by law.”
Gary Gensler, Chair SEC
Spot ether ETFs are more complex than bitcoin and have “significantly” greater risk profiles than spot bitcoin ETFs, which could prolong regulators’ decision-making on the funds, Galaxy Digital said in a recently published report.
The list of top asset managers to file paperwork with the SEC to release an Ether ETF includes VanEck, BlackRock, and Franklin Templeton.
The FIT21 bill in Congress
As noted above, the Financial Innovation and Technology for the 21st Century Act, known on the Hill as FIT21, passed in the House Wednesday afternoon. It did so by a vote of 279-136, with 71 Democrats voting in favor.
The legislation provides a path for cryptocurrencies that have achieved sufficient decentralization to be traded and used by US purchasers.
It also provides clarity for which tokens would be the responsibility of the SEC as opposed to the Commodity Futures Trading Commission and how such projects could attain regulated status with the agency.
The Biden administration had issued a policy statement opposing passage of the bill, though it stopped short of expressing a veto threat. The bill needs to go to the Senate where Democrats hold a slight majority.