The U.S. Securities and Exchange Commission will likely decide the fate of two proposed spot ether (ETH) exchange-traded funds this week, and crypto supporters are bracing for a letdown. The VanEck and ARK Invest ETFs face a May 23 deadline, and some investors worry a denial could lead to a crypto selloff.
If the ETFs aren’t approved, it will likely be due to fraud and security concerns arising from the insufficient regulatory framework around cryptocurrency. Most of the laws regulating securities have been in place for decades and don’t have the bandwidth to address crypto and digital assets.
“Without any cop on the beat, it’s forcing investors to go on their own outside of the investment advisory community because the community can’t help them, because we don’t know what the rules are,” Ric Edelman, head of the Digital Assets Council of Financial Professionals told CNBC. “They’re ending up in scams and frauds.”
Hesitant Acceptance
After the recent bitcoin ETF launch, crypto investors were hoping ether ETFs were next in line. However, the SEC only acquiesced to bitcoin ETFs because it lost a legal battle. Following the reluctant approval, SEC chair Gary Gensler issued a statement cautioning investors about the risks of investing in cryptocurrency.
The SEC aims to take a wait-and-see approach to scrutinize the performance of bitcoin ETFs before approving any other crypto funds. One reason Gensler signed off on bitcoin ETFs is because bitcoin was the only cryptocurrency he considered a commodity, not a security.
Ether is a more complex crypto than bitcoin, so the commission seems almost certain to balk. The SEC is also worried that approving an ether ETF could open the door to a flood of crypto and digital asset funds.
Unlikely Odds
Due to these factors, the crypto community has put the odds of ether ETF approval at 7%. Some experts, however, believe there’s a 30%-35% chance the two ETF applications get the nod.
If denied, ether ETF providers could follow the same route as bitcoin ETF companies and take legal action against the SEC. While they might eventually win, a lengthy court battle could keep ether ETFs off the market for some time. It would also disappoint Grayscale and Bitwise, whose applications are next on the chopping block.
The crypto market has been strong over the past few months, in part due to the bitcoin ETF approval, and ETH holders hope that an SEC denial won’t hinder that resurgence. ETH is currently up over 32% year-to-date.
