Reuters: US SEC will reject Ethereum ETF

Source: Carbon Chain Value

On April 25, Reuters reported that the U.S. SEC will reject the application for Ethereum spot ETF next month. According to four people familiar with the matter, after meetings with the U.S. Securities and Exchange Commission (SEC) in recent weeks, U.S. issuers and other companies expect the SEC to reject their applications to launch Ethereum spot ETFs linked to Ethereum prices.

VanEck, ARK Investment Management and seven other issuers have submitted applications to the SEC to list ETFs that will track the spot price of the world's second largest cryptocurrency after Bitcoin. The SEC must make decisions on VanEck and ARK's applications by May 23 and May 24, respectively, and the applications of these two companies are ranked first.

Four people who attended the meeting said that the recent meeting between the issuer and the SEC was one-sided and that the agency's staff did not discuss the substantive details of the proposed product.

These people declined to be identified because the talks were private.

The SEC, led by cryptocurrency skeptic Gary Gensler, had rejected spot bitcoin ETFs for more than a decade over market manipulation concerns but was forced to approve them after Grayscale Investments won a court challenge.

The issuers argued at the meeting that these ETFs and an ETF based on ethereum futures approved by the SEC in October set a precedent for spot ether products and sought to address potential regulatory issues, the people said. They added that SEC staff listened to their arguments but did not articulate specific concerns or ask general questions, suggesting the agency would reject the applications.

This would be a setback for the cryptocurrency industry, which had hoped that spot bitcoin ETFs would pave the way for other similar products and push cryptocurrencies into the mainstream.

It looks more likely that approval will be delayed until later in 2024, or longer, said Todd Rosenbluth, head of ETF analytics at data firm VettaFi, who is tracking the issue closely. “The regulatory situation still seems unclear.”

Some issuers said they still plan to file additional disclosures with the SEC to continue the dialogue.

An SEC spokesman said the commission does not comment on individual applications. VanEck CEO Jan van Eck told CNBC this month that the company’s application “will most likely be rejected.”

ARK did not respond to a request for comment. At an event this week, ARK CEO Cathie Wood said Ethereum could become a major asset class.

Hong Fang, president of cryptocurrency exchange OKX, said the price of ether reflects the expected depreciation. While the cryptocurrency has risen 39% this year, it has struggled to keep pace with Bitcoin, which has risen more than 51% and hit a new high last month. Fang said as people build up such expectations, there will be more downward pressure on prices.

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The SEC has held only a few meetings on ether products so far, according to sources and SEC records.

The only meeting disclosed by the regulator was last month with cryptocurrency exchange Coinbase. The meeting was related to Grayscale's application to convert its Ethereum Trust into an ETF, for which Coinbase is the custodian.

The SEC's approval of the spot Bitcoin ETF is based on the fact that the existing market surveillance mechanism for the Bitcoin futures ETF it approved in 2021 is also sufficient for the spot ETF. Coinbase believes that the same reasoning applies to the spot Ethereum product because Ethereum futures and spot markets are highly correlated, according to the SEC's disclosure.

If the SEC does reject the Ethereum ETF, some applicants expect it to do so due to a number of broad issues, such as the nature and depth of the underlying Ethereum market statistics.

Matt Hougan, chief investment officer at Bitwise Asset Management, which has applied for an Ethereum spot ETF, said the agency may believe that it has limited time to observe Ethereum futures.

"I think that would be the mechanical reason why it was pushed out, because they just want to see more data."

Some industry insiders said the rejection could lead to another lawsuit. "It's entirely possible that we'll eventually see an Ethereum ETF," one of the sources said. "But only if someone gets rejected and goes to court."