Following the success of the 11 bitcoin ETFs earlier this year, ethereum seemed to be the next in line, as eight issuers submitted applications to the SEC to market Ethereum spot ETFs. However, with the news of an SEC investigation into ethereum, those prospects seem murky.
Ethereum is the world’s second-largest cryptocurrency, trailing bitcoin. BlackRock, while concurrently working on launching its bitcoin ETF, filed to launch an ethereum ETF in November 2023. The spot bitcoin ETFs from BlackRock and ten other asset managers launched earlier this year, but a similar product for ethereum has yet to materialize.
The latest setback stems from the SEC’s inclination to classify ethereum as a security rather than a commodity. Notably, the SEC has been treating bitcoin as a commodity.
The main reason for this differentiation appears to be ethereum’s reliance on a proof-of-stake mechanism within its blockchain network. SEC chair Gary Gensler has said that cryptocurrencies using proof-of-stake technology to handle transactions could be classified as securities. In addition, U.S. Senators, Jack Reed (D-R.I.) and Laphonza Butler (D-Cal.) have asked Gensler to reject the Ethereum ETFs, citing “enormous risks” for retail investors.
The SEC Drags Its Feet
The SEC has been signaling it would delay its decision on the ethereum ETFs. In early March, in the wake of additional applications from asset managers, the agency requested public comments on the approval of ethereum ETFs. The commission has a publicly announced deadline of May 23 for the first wave of applications to market such a vehicle.
BlackRock and seven other asset managers have filed applications for a spot ethereum ETF. Should the SEC fail to approve all eight ETFs by that deadline, all prospective issuers will be required to refile their applications at an unspecified later date.
Currently, there are several ETFs offering exposure to Ethereum through futures, which allow investors to track the price of ethereum without directly holding it. The SEC began approving such vehicles in October 2023.
Futures are derivatives that bet on the future price of ethereum as opposed to the current spot price. By contrast, spot ETFs hold an equivalent amount of the underlying asset that is represented by the ETF.
