Why Spot Ether ETFs Could Face a Difficult Path to Approval

The Securities and Exchange Commission has begun to consider applications for exchange-traded funds (ETFs), spot, for Ethereum ( USD), which is the native token for the Ethereum Blockchain and second most valuable cryptocurrency in terms of market capitalization. Experts are becoming increasingly doubtful that the SEC will approve any ETFs anytime soon.

The agency’s approval of

The biggest concern with Ether ETF is the stake.

Investors are unsure that the approvals would come as planned in May. This is due to a number of factors. The primary reason is that the ether has been staked, a method in which crypto holders use their money as collateral for the operation of a Blockchain in exchange of rewards such as additional cryptocurrency.

Fidelity amended their proposal on March 18 to include the option for traders to stake assets. A day later, Grayscale also added staking to its application.

It also a data-component=”link” data-ordinal=”2″ data-source=”inlineLink” and href=”https://www.investopedia.com/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669″. also sued Coinbase for their staking offer. This litigation is ongoing.

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This could be particularly interesting when it comes to an Ether ETF where the investors don’t actually own the tokens. They get shares of a fund which has invested their money in the portfolio containing the token.

Noelle Acheson, a crypto researcher who wrote a March 12 note, pointed out that the “regulatory cloud” around ether staking could cause people to deny the existence of the practice.

SEC chair has consistently criticized crypto

The SEC approved ETFs for Spot Bitcoin in January, after many failed attempts. The SEC had denied previous filings up until the District of Columbia Court of Appeals ruled that the SEC did not adequately justify its rejections. This was in the case of the Grayscale Bitcoin Trust’s conversion into an ETF ( GBTC). The commission approved the trading and listing of spot bitcoin ETF share.

Chervinsky wrote that, in a post published on X, March 11, chief legal officer of Variant, a crypto-fund in its early stages, Jake Chervinsky said that, if the SEC were to come up with ‘new grounds for denial, that have not been tested in court by Grayscale, they would also likely be challenged in court. Chervinsky writes that the SEC would be willing to lose in court and take on litigation risks in order to avoid being accused of acquiescing in the crypto war.
According to Yahoo Finance, he continued his criticism of cryptocurrency by saying that it is “prone to abuses and fraudulent practices” as well as “challenging”.

Ether and Bitcoin: Differences

Acheson stated that Ether has a problem conceptually that doesn’t exist for bitcoin. Acheson stated that “this statement may irritate some, but ETH is created to be used and not held.”

She said that ETH is a good store of value for and other functions but this was not its biggest advantage.

Acheson stated that bitcoin is an investment product. For BTC, a spot ETF is logical. “For ETH, it’s less important,” said she.

A second point of distinction could be the classification of Ether as a financial instrument, as opposed with bitcoin which is viewed as a commodity. According to Bloomberg, the report was published on March 20. The SEC has begun an investigation into the Ethereum Foundation. This could result in ether being classified as a financial instrument.

The SEC’s ability to categorize ether as security would have drastic consequences, not only for the token but also the entire cryptocurrency market. Ether will be subject to securities laws, and the SEC has more authority to control the currency and its trading. This could open the door for other tokens, such as crypto coins to be classified securities and subject to more regulatory scrutiny.

The SEC’s refusal to allow Ether ETFs is not a reason for insiders.

In a blog post published on X, Coinbase’s Chief Legal Officer Paul Grewal stated that in the past some regulators clarified ether as a commodity. However, the SEC has expressed doubts about the token’s ability to be classified as a financial instrument.

The SEC does not have a good reason for denying the ETH ETP application. We hope that they will not try to create one by questioning ETH’s long-established regulatory status, which has been repeatedly endorsed by the SEC,” Grewal wrote.

Craig Salm, Graycale’s Chief Legal Officer, posted on X on Monday with an upbeat tone. He said that issues resolved prior to the SEC approving the bitcoin spot ETFs are the same ones that it must consider now. 13

Salm explained that the only difference was instead of holding bitcoins, ETFs now hold ether. Salm said that the SEC has already engaged in many areas, and issues have less work to do at this time.

Salm stated that he may feel differently when we reach the final approval/deny date in May 2024. But at this time, a perceived lack of involvement from regulators shouldn’t be indicative of a particular outcome.