Crypto Quill

The U.S. Securities and Exchange Commission (SEC) has announced that it will extend the time period for reviewing the application of Grayscale Investments to convert its Ethereum trust product into a spot exchange-traded fund (ETF). The decision, which was expected to be made by January 25, 2024, has been postponed to March 11, 2024, according to a filing published on Thursday.

Grayscale’s Spot Ether ETF Awaits SEC Approval

Grayscale Investments, the largest digital asset manager in the world, filed an application with the SEC in October 2023 to convert its Grayscale Ethereum Trust (ETHE) into a spot ETF. The trust, which was launched in 2017, allows accredited investors to gain exposure to the price of ether (ETH) without having to buy or store the cryptocurrency directly. The trust currently has over $8 billion in assets under management, making it the second-largest crypto trust after the Grayscale Bitcoin Trust (GBTC).

A spot ETF, unlike a futures-based ETF, would track the market price of the underlying asset and hold it in custody. This would provide investors with a more direct and cost-effective way to access the crypto market, as they would not have to pay any premiums or fees associated with the trust structure. A spot ETF would also be more appealing to institutional investors, who may prefer to invest in regulated products that comply with the securities laws.

Grayscale is not the only firm that has applied for a spot ether ETF. BlackRock, the world’s largest asset manager, also submitted an application to the SEC in November 2023, seeking to launch the BlackRock Ethereum ETF. The SEC also delayed its decision on BlackRock’s proposal to March 10, 2024, a day before Grayscale’s new deadline.

SEC Chair Cautions Against Expectations for Crypto ETFs

The SEC’s delays on the spot ether ETF applications come as no surprise to the crypto industry, as the regulator has been historically reluctant to approve any crypto-related products. The SEC has rejected several applications for bitcoin ETFs in the past, citing concerns over market manipulation, fraud, and investor protection.

However, the SEC recently approved 11 spot bitcoin ETFs, marking a major milestone for the crypto sector. The first spot bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO), debuted on October 19, 2023, and attracted over $1 billion in assets on its first day of trading. The other 10 spot bitcoin ETFs followed suit, offering investors a convenient and regulated way to gain exposure to the leading cryptocurrency.

The approval of the spot bitcoin ETFs sparked optimism and speculation that the SEC might soon approve spot ether ETFs as well, given that ether is the second-largest cryptocurrency by market capitalization and has a similar status as a non-security commodity. However, SEC Chair Gary Gensler dampened these expectations in a media briefing on January 24, 2024, where he clarified that the SEC’s actions regarding bitcoin ETFs were limited to this particular commodity and should not be construed to imply anything beyond that.

Gensler also reiterated his stance that most cryptocurrencies, especially those that are associated with decentralized platforms or protocols, are likely to be considered securities under the federal laws and thus subject to the SEC’s jurisdiction and regulation. He urged the crypto industry to cooperate with the SEC and seek registration and compliance, warning that the agency will continue to enforce the securities laws and protect the investors.

Crypto Industry Remains Hopeful for Spot Ether ETFs

Despite the SEC’s cautious approach and delays, the crypto industry remains hopeful that the regulator will eventually approve spot ether ETFs, as well as other crypto-related products. The industry argues that spot ether ETFs would benefit the investors, the market, and the innovation, as they would provide more transparency, liquidity, and accessibility to the crypto space.

The industry also points out that spot ether ETFs are already available in other jurisdictions, such as Canada and Brazil, where they have been operating successfully and without any major issues. The industry believes that the U.S. should not lag behind other countries in embracing the crypto innovation and offering more choices and opportunities to the investors.

The industry also hopes that the SEC will consider the positive developments and improvements that have taken place in the crypto market, such as the adoption of best practices, standards, and safeguards, the emergence of reputable and regulated service providers, and the growth of institutional and retail demand. The industry hopes that these factors will persuade the SEC to recognize the potential and legitimacy of the crypto sector and approve spot ether ETFs in the near future.