Crypto Quill

The U.S. Securities and Exchange Commission (SEC) has postponed its decision on a proposed spot Ethereum (ETH) exchange-traded fund (ETF) from Invesco and Galaxy Digital, citing the need for more public comment and review. The delay comes as the crypto industry eagerly awaits the approval of the first spot ETH ETF in the U.S., following the launch of several spot Bitcoin (BTC) ETFs earlier this year.

What is the Invesco Galaxy Ethereum ETF?

The Invesco Galaxy Ethereum ETF is a joint venture between Invesco, a leading global asset manager, and Galaxy Digital, a diversified financial services firm focused on digital assets. The ETF aims to provide investors with exposure to the performance of ETH, the native cryptocurrency of the Ethereum network, by holding ETH in a custodial account and tracking the Cboe CF Ether-Dollar Settlement Price.

The ETF was filed with the SEC in October 2023, and published in the Federal Register in November 2023, triggering a 45-day period for the SEC to approve or deny the proposal. However, the SEC has the authority to extend this period for up to 240 days, which it has done in the case of the Invesco Galaxy Ethereum ETF.

Why did the SEC delay the decision?

According to a notice published on Feb. 6, 2024, the SEC has decided to institute proceedings to determine whether to approve or disapprove the proposed rule change that would allow the listing and trading of the ETF on the Cboe BZX Exchange. The SEC said it needs more time to gather additional information and consider the legal and policy issues raised by the proposal, as well as the public comments submitted so far.

The SEC also invited further public comment on the proposal, specifically on the following questions:

• Whether the proposed ETF is consistent with the requirements of the Securities Exchange Act of 1934, especially the protection of investors and the public interest.
• Whether the proposed ETF would be susceptible to manipulation, fraud, or other abusive practices in the ETH market or the ETF market.
• Whether the proposed ETF would have sufficient liquidity, transparency, and efficiency in the ETH market and the ETF market.
• Whether the proposed ETF would have adequate safeguards against cyberattacks, theft, or loss of ETH.
• Whether the proposed ETF would have appropriate valuation, custody, and audit procedures for ETH.

The SEC said it will accept public comments until 21 days after publication in the Federal Register, and rebuttal comments until 35 days after publication. The new deadline for the SEC to make a final decision on the proposal is now Feb. 6, 2024.

What are the implications of the delay?

The delay of the Invesco Galaxy Ethereum ETF is not surprising, as the SEC has taken a cautious approach to crypto ETFs in general, and has delayed or rejected several proposals in the past. However, the delay is also not a definitive rejection, and leaves the door open for a possible approval in the future, depending on the outcome of the proceedings and the public comment process.

The delay also does not affect the other spot ETH ETF proposals that are currently pending before the SEC, such as those from BlackRock, Hashdex, ARK 21Shares, VanEck, and Fidelity. Some of these proposals have earlier deadlines than the Invesco Galaxy Ethereum ETF, and could potentially be approved sooner. For instance, the VanEck Ethereum Trust ETF has a final deadline of May 23, 2024.

The approval of the first spot ETH ETF in the U.S. would be a major milestone for the crypto industry, as it would provide a regulated and convenient way for investors to access the second-largest cryptocurrency by market capitalization. It would also likely boost the demand and price of ETH, as well as the adoption and innovation of the Ethereum network, which supports a variety of decentralized applications, smart contracts, and non-fungible tokens (NFTs).

The crypto industry has already witnessed the positive impact of the approval of the first spot BTC ETFs in the U.S., which launched in January 2024 and attracted billions of dollars in inflows and trading volume. The spot BTC ETFs also helped BTC reach new all-time highs above $70,000 in February 2024.