US witnesses a chaotic dispute over Ethereum ETFs
Michael Saylor holds the belief that exchange-traded funds (ETFs) based on Ethereum’s spot price will not be launched, and even some fund issuers share this skepticism about their prospects for this year. In the meantime, other countries are gaining an advantage as first movers in this space.
The battle to introduce ETFs based on Ethereum’s spot price in the United States is intensifying, and the journey so far resembles the long and complicated path that Bitcoin had to navigate for approval.
Once again, the U.S. Securities and Exchange Commission (SEC) is taking its time in providing a definitive answer to the applications that have already been submitted. Receiving approval is crucial because it would enable investors to gain exposure to ETH without actually owning the underlying asset.
Grayscale and Franklin Templeton were both expecting a response from the SEC in April, but the regulator has now pushed back their deadlines to June. Fidelity and BlackRock have also had similar applications delayed. VanEck and ARK Invest are due to receive a response later this month, but hopes for approval have been rapidly diminishing.
Why is this the case? It seems that there are indications that the regulator views Ether as a security, rather than a commodity like Bitcoin.
A dispute has been growing on this matter. In June 2023, during a hearing in front of the House Financial Services Committee, SEC chair Gary Gensler declined to express his opinion on whether he considers ETH to be a security. This lack of a clear answer unsettled the crypto industry, especially as it contradicted earlier guidance from his predecessor Jay Clayton. Even earlier than that, around the time of The Merge in September 2022, Gensler had hinted that the staking process may fall under securities rules.
The determination of Ether’s status is significant because it determines which organization has regulatory oversight in the U.S. If it is deemed a security, this could create significant issues for other altcoins.
In a recent development, Consensus filed a lawsuit against the SEC and defended Ethereum, arguing that the commission’s “unlawful power grab threatens to undermine America’s position as a leader of the next generation of the internet.”
Michael Saylor, the executive chairman of MicroStrategy and a prominent advocate for Bitcoin, believes that ETFs based on Ether’s spot price will never come to fruition. Speaking at the annual Bitcoin for Corporations event, he issued a warning. However, it can be argued that Saylor’s opinion is biased, considering his belief that BTC is the only cryptocurrency that is technically and ethically sound. In July 2022, he cautioned that Ether’s ongoing upgrades introduce new vulnerabilities that undermine security and reliability.
The current challenge seems to be the lack of communication between the SEC and the firms seeking to launch an Ether ETF. As Barron’s reported last month, applicants are not receiving the necessary feedback to finalize their products. In contrast, BTC ETF issuers had engaged in a robust back-and-forth before their funds began trading.
Jan van Eck, whose investment firm is awaiting a decision from the SEC, candidly expressed his belief on CNBC in April that the application will likely be rejected. Jean-Marie Mognetti from CoinShares predicted that no approvals will occur in 2024.
While the U.S. remains paralyzed by regulatory uncertainty and a lack of clarity on Ether’s status, crypto firms are becoming increasingly frustrated. In the meantime, other jurisdictions are seizing the opportunity as first movers. Hong Kong has recently launched an ETH ETF, with speculation that this could potentially attract investors from mainland China in the future.
As noted by S&P Global, funds based on Ether’s spot price have already been approved in Canada, Switzerland, Sweden, and Germany. Some of these funds even offer additional yield through staking returns. With ETFs in other countries amassing billions of dollars in assets under management, the U.S. risks falling further behind.
