In this illustration taken on June 16, 2023, the cryptocurrency ether is placed on a PC motherboard.
Ruvik Dice | Reuters
The U.S. Securities and Exchange Commission on Thursday approved a rule change that will pave the way for buying and holding ETFs etherone of the largest cryptocurrencies in the world.
The decision comes less than six months after the U.S. Securities and Exchange Commission approved a Bitcoin ETF. The funds have proven hugely successful for the industry, with net inflows exceeding $12 billion, according to FactSet data.
Late May has long been considered a potential decision date for the Ethereum fund, as it coincides with the SEC’s deadline to decide whether the VanEck Ethereum ETF can proceed.
Many of the companies sponsoring Bitcoin ETFs—including BlackRock, Bitwise, and Galaxy Digital—have also begun launching Ethereum funds.
Ethereum prices rose just 2%, despite rising 20% earlier in the week in anticipation of Thursday’s decision. Some investors may also be hesitant because approval of the SEC rule change does not guarantee that all funds will launch.
Specifically, the SEC’s order approved applications from various exchanges to list eight different Ethereum funds. Technically, the order does not approve the funds themselves or set a date for the ETFs to begin trading.
The Ethereum ETF is expected to be smaller than the Bitcoin ETF, at least initially. The Grayscale Ethereum Trust now has about $11 billion in assets, much smaller than the company’s pre-switch Bitcoin fund.
The approval of the Ethereum ETF signals a possible softening of the U.S. Securities and Exchange Commission’s (SEC) stance on cryptocurrencies following a series of legal battles. The agency lost its lawsuit against Grayscale in 2023, which led to the approval of the Bitcoin product.
The U.S. Securities and Exchange Commission’s push for cryptocurrency regulation is also being closely watched by politicians. The Senate passed a resolution last week to withdraw an SEC staff announcement on digital asset accounting rules.
Ethereum, the second-largest crypto asset, has joined Bitcoin as a blue-chip coin, albeit with a very different value proposition. although Bitcoin Viewed primarily as a long-term store of value, investing in Ethereum is considered more akin to investing in early-stage technology. Ethereum powers the Ethereum network, which powers different applications such as decentralized finance (DeFi) projects, non-fungible tokens (NFTs), or the real world of commodities, securities, art, real estate, etc. Tokenization of assets.
Richard Kerr, a partner at law firm K&L Gates, said the application approved Thursday does not apply to other crypto projects on the ethereum network.
“If an Ethereum product is approved, it does not mean that similar products for other digital assets on the Ethereum platform will also be approved,” Kerr said.
Ethereum also offers staking opportunities, which are a way for investors to earn interest on their ether by locking their tokens online for a period of time — although U.S.-based Ethereum ETFs may not participate. The U.S. Securities and Exchange Commission (SEC) claims in its lawsuit against Coinbase and Kraken that staking-as-a-service products are unregistered securities. Ark, Fidelity and Grayscale updated their documents this month to remove staking from their proposals.
Steven Lubka, managing director of Swan Bitcoin and head of Swan Private, said the lack of collateral in ETF products is another reason why demand for Ethereum ETFs may be lower than its Bitcoin counterparts.
“These numbers do not match the inflows into the Bitcoin ETF, and there are some structural differences in the product that make it less attractive overall,” Lubka said.
