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News/SEC Officially Approves Ethereum ETFs, Market Sees Mixed Reaction

SEC Officially Approves Ethereum ETFs, Market Sees Mixed Reaction

Van Thanh Le

May 23 2024

4 weeks ago3 minutes read
Monolithic robot mosaic made of Ethereum blocks, holds symbol

Ethereum ETFs Approved Amid Mixed Market Reactions

On May 23 afternoon, the SEC approved eight Ethereum ETFs from issuers such as BlackRock, Fidelity, and Grayscale, but trading might take weeks or months as S-1 registration statements still need approval. Analysts predict trading could start by mid-June to August, with varying estimates on the inflow impact. Approval suggests Ether’s non-security status, but the SEC may still regulate staking activities. 

Despite the approval, Ethereum’s price failed to exceed $4,000, reflecting a “sell-the-news” sentiment, causing a 3.5% price drop and $107 million in ETH long trader losses. Market-wide, traders lost $400 million in liquidations, indicating that the approval had been priced in. The SEC’s delayed allowance for ETF trading, despite approvals, adds to the market's uncertainty.

SEC Discussions and Potential Approval of Ethereum ETFs

Journalist Eleanor Terrett broke the news on May 22 that the SEC had initiated talks with Ethereum ETF issuers regarding S-1 forms. This development hints at a possible imminent approval for spot Ether ETFs. However, SEC staff emphasized the need for further refinements on these S-1 forms, which are essential registration documents for companies. 

Bloomberg's senior ETF analyst, Eric Balchunas, suggested that an announcement on the approval of 19b-4 forms might be expected by 4 pm ET on May 23, following a pattern seen with spot Bitcoin ETFs. The recent approval of the FIT21 crypto bill by the U.S. House of Representatives could also influence the SEC's decision-making process.

Earlier this week, Bloomberg ETF analysts Eric Balchunas and James Seyffart have raised the probability of a spot Ethereum ETF approval in the U.S. from 25% to 75%, mirroring the recent surge in Ethereum (ETH) prices, which jumped by 8.3% after the news. SEC staff have indicated their inclination to approve Ethereum ETFs, pending resolution of certain application comments, following a coordinated strategy used earlier for Bitcoin ETFs that saw Bitcoin's price rise by 60%. 

Market reactions to the potential approval are already evident, with Bitcoin up 5% to $70,350 and Ether prices climbing 23% to $3,790 on Tuesday, further rising to $3,900 by Thursday morning (ET time) before fluctuating.

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Requests for Revisions and Amended Filings

The SEC's Trading and Markets Division reportedly instructed asset managers on May 21 to revise and resubmit their Form 19b-4 filings for Ethereum spot ETFs, signaling a shift in the agency’s stance on cryptocurrency ETFs. Major applicants like Fidelity, ARK Invest, VanEck, and others have amended their filings to exclude provisions related to staking on the Ethereum network, following SEC feedback. 

Effervescent robot mosaic forms from Ethereum vortex, virtual reality.webp

Nasdaq and CboeBZX have filed updated forms for several spot ETF proposals, including Franklin Ethereum Trust, Fidelity Ethereum Fund, VanEck Ethereum Trust, Invesco Galaxy Ethereum ETF and the ARK 21Shares Ethereum ETF, and BlackRock's, while Grayscale revised its 19b-4 form for its Ethereum Mini Trust. Fidelity also amended its S-1 application, specifying that the underlying Ether tokens will not be staked, addressing security and regulatory concerns.

The SEC faces crucial deadlines to decide on VanEck and ARK Invest's spot Ethereum ETF applications by May 23 and 24, respectively. VanEck has urged the SEC to prioritize its application, arguing against simultaneous approvals. 

Outlook and Future Developments

Standard Chartered predicted SEC approval by May 24, with market inflows into the ETFs projected to reach between $15 billion and $45 billion in the first year. Experts in the industry reported that U.S. lawmakers and industry leaders are advocating for these approvals, reflecting broad institutional support.

The SEC's decision on VanEck's application is poised to influence the future of cryptocurrency ETFs in the U.S., potentially offering traditional investors regulated exposure to Ethereum. The competitive nature of the ETF market and the SEC's decision-making process will play a pivotal role in market dynamics and investor confidence. 

Broker Bernstein expects Ether's price to rally around 75%, similar to Bitcoin's price increase after the approval of spot Bitcoin ETFs. Their report notes that Ether has a more attractive free float and supply compared to Bitcoin, as 38% of the Ether supply is locked in staking, smart contracts, and layer 2 chains, while 66% of the Ether supply has remained unmoved for the past 12 months. Additionally, approval of a spot Ether ETF could also set a precedent for other cryptocurrencies like Solana (SOL), potentially paving the way for their ETF approvals. 

FAQs

Q: Is the SEC likely to approve Ethereum ETFs?

A: Yes, there is a high probability of approval based on recent discussions with issuers and analyst predictions. The SEC is reviewing S-1 forms and may announce a decision by May 23-24.

Q: What are the key factors influencing the SEC's decision?

A: The SEC is focused on investor protection and ensuring proper exchange listing standards. They are reviewing applications with comments on staking and requiring revisions from issuers.

Q: What could be the impact of approval on the market?

A: Analysts expect a surge in Ether prices similar to Bitcoin's increase. The approval could also lead to significant investment inflows and set a precedent for other cryptocurrency ETFs.

This article has been refined and enhanced by ChatGPT.

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