It was looking like an all-but-certain rejection from the Securities and Exchange Commission, but just hours before a May 23 deadline to rule on VanEck’s application to launch a spot Ethereum exchange-traded fund, it appears that the SEC may be reconsidering.
CoinDesk first reported on Monday that the nine would-be issuers that filed to list and trade shares of the ETFs were “abruptly” asked by regulators to update their 19b-4 filings on an accelerated basis. A 19b-4 form is what an exchange like the NYSE requires for the introduction of new products—in other words, the applicants and the exchange are asking the SEC for permission to add the ETFs to their platforms.
Since rumors began swirling on Monday afternoon, the price of Ether has shot up nearly 20%, trading near $3,750 around 1:30 p.m. ET on Tuesday.
It's hard to believe this SEC would do us any favors like approving the spot ETH ETF.
— Jake Chervinsky (@jchervinsky) May 21, 2024
But policy is politics, and crypto has been winning the political battle for months.
Maybe the Biden camp saw how many voters Trump could win with one pro-crypto comment and decided to pivot.
As VanEck is the first exchange to have filed an application, it receiving approval hypothetically would be a green light for others waiting to hear about their own 19b-4s. As chatter began to circulate on Monday that the applications were evolving, Bloomberg analysts updated their odds of an approval from 25% to 75%.
But the news has left issuers scrambling. Each issuer that James Seyffart, Bloomberg’s ETF analyst, has spoken with has been "caught off guard by the SEC's 180-degree pivot,” he told Fortune. The agency reached out to filers with comments and requested updates just three days before the deadline, he explained.
“This is not standard operating procedure, and everyone from issuers to exchanges to lawyer, to market makers, and more, are scrambling to be ready for a potential approval—and to meet the SEC's requirements,” Seyffart adds. The rushed nature of the pivot suggests it was likely a “political move,” the result of a “top-down decision” from the Biden administration, he speculates. “No issuer is ready,” he wrote on X.
It's hard to believe this SEC would do us any favors like approving the spot ETH ETF.
— Jake Chervinsky (@jchervinsky) May 21, 2024
But policy is politics, and crypto has been winning the political battle for months.
Maybe the Biden camp saw how many voters Trump could win with one pro-crypto comment and decided to pivot.
So far, Grayscale is the only would-be issuer to post an updated 19b-4 to the New York Stock Exchange’s website, for its application to transfer over its Ethereum Mini Trust ETF. Meanwhile, Fidelity has dropped its plans to stake the Ether in its ETF, according to an S-1 update filed to the SEC early Tuesday. In previous filings, the firm said it intended to “stake a portion of the trust’s assets” to “one or more” infrastructure providers, but now it will “not stake the Ether” stored with the custodian.
Staking involves committing Ether to secure the network in return for yield, which is currently at about 3%, according to data from staking service Lido. Ark and Franklin Templeton also have considered staking in their applications. In today’s updated 19b-4 from Grayscale, the firm confirmed it will not participate in staking. Both Grayscale foregrounding this and Fidelity omitting it suggests the SEC may have requested staking be prohibited. Vance Spencer, cofounder of Framework Ventures, told Fortune he estimates that the SEC's last-minute requests included guidance on staking.
Staking the underlying Ether in the ETF has been a regarded as a reason why the SEC could reject applications, as Chairman Gary Gensler voiced concern last March that digital assets using staking protocols could be considered securities under federal law. Staking could be “a significant complication,” Bitwise CIO Matt Hougan previously told Fortune.
However, even if the SEC approves VanEck’s 19b-4 on Thursday, it doesn’t guarantee authorization, as the exchanges will need issuers' S-1 applications before products begin trading. When applying to launch a new security, an S-1 is the form that outlines to potential investors and the SEC the structure of the asset, how it will be managed, and, in this case, how it plans to mirror the performance of the underlying asset—Ether tokens.
But S-1s could take “weeks to months” to approve, Seyffart wrote on X. “That said, if we're correct and we see these theoretical approvals later this week. It should mean that S-1 approvals are a matter of 'When' not 'If.'"
