Pending Ethereum Spot ETF Applications – Will the SEC Approve or Deny Them?

On January 10, 2024, the Securities and Exchange Commission (SEC) approved eleven applications for the first ever Bitcoin Spot exchange-traded funds (ETFs), which have been publicly listed and subsequently trading in the secondary market since their approval. This was the first time that the marketplace had seen an attempt to make crypto-based securities available to a regular retail investor, like yourself. Click here for the related Malecki Law firm blog post [to link to Adam’s general blog about the approval]. If your broker has recommended that you purchase Bitcoin Spot ETFs, you may need to consult with a Crypto-Based Securities lawyer in New York, like the lawyers at Malecki Law, to determine whether that investment recommendation was made in your best interest.

The SEC’s approval of the Bitcoin Spot ETFs may have opened the door for similar Spot ETFs tied to other cryptocurrencies. The SEC’s second round of ETF reviews is currently underway, as there are at least eight issuers with pending applications for Ethereum Spot ETFs, including Fidelity, BlackRock, Invesco with Galaxy, Grayscale, Hashdex, 21 Shares with ARK, VanEck, and Franklin Templeton. These ETFs would work in the same practical sense as the Bitcoin Spot ETFs, except, they would be tied to the cryptocurrency Ethereum rather than Bitcoin. If your financial advisor is recommending that you invest in Ethereum Spot ETFs, if they are approved by the SEC, you should consult with a lawyer from Malecki Law, a Crypto-Based Securities law firm in New York, to see if your advisor is making investment recommendations in your best interest, as required by Regulation Best Interest.

Bitcoin and Ethereum generally maintain the largest market capitalizations for cryptocurrencies, Bitcoin being number one and Ethereum being number two. As of March 26, 2024, Bitcoin had a market capitalization of over $1.3 trillion while Ethereum had a market cap over $425 billion. Based on this, it would make sense for Ethereum Spot ETFs to follow Bitcoin Spot ETFs. However, there may be less optimism for Ethereum. Noelle Acheson, a crypto researcher, author, and host of the Markets Daily podcast, indicated that there is a “conceptual problem for Ether that didn’t apply to bitcoin.” At the same time, others in the industry maintain the belief that Ethereum Spot ETFs make sense (click here for a related Nasdaq article). Did your broker recommend that you invest in crypto-based securities? Did your broker obtain important investor profile information, like your risk tolerance and liquidity needs, before making such a recommendation? If the answer is no, you should speak with a lawyer at a Crypto-Based Securities law firm, like the lawyers at Malecki Law in New York, to review your situation.

As of now, deadlines for the SEC to approve or deny the Ethereum Spot ETFs is at the end of May 2024. The SEC has delayed its deadline to approve or deny BlackRock’s and Fidelity’s respective Ethereum Spot ETF applications. Part of the delay is that the SEC requested public comment for whether the public agrees with the Fidelity and Blackrock ETF applications. The SEC is also specifically seeking public comment on whether the public believes that the Ethereum Spot ETFs would open the door to manipulation.

BlackRock had originally filed its application to publicly list its Ethereum Spot ETF in November 2023. The ETF is called iShares Ethereum Trust and would be publicly listed on Nasdaq if the SEC approves it in or by May 23, 2024. BlackRock’s proposal is to transform its preexisting trust, that holds futures tied products, to the Spot ETF. Prior to the landmark decision involving Grayscale, the SEC generally held the position that Spot-tied products would attract fraud or manipulation.

Fidelity had originally filed its application to publicly list its Ethereum Spot ETF in November 2023. If approved, the ETF (Fidelity Ethereum Fund) would be publicly listed on the Cboe BZX Exchange.

During the approval process for Bitcoin Spot ETFs, some applicants filed updated documents with the SEC in an effort to incorporate feedback from the public comment period. The SEC ultimately approved those applications. If Ethereum Spot ETF applicants start to update their filed documents to incorporate feedback, it may be a good sign that the SEC may lean toward approving those applications. If you are invested in crypto-based securities but are unsure if they were sold to you in your best interest, you should reach out to Crypto-Based Securities attorney in New York, like the lawyers at Malecki Law, to analyze your holdings.

However, because of the apparent splash the approval of the Bitcoin Spot ETF had on the market, there may be an even closer eye on the pending Ethereum Spot ETF applications. Benjamin Schiffrin, a former associate general counsel at the SEC, indicated that Bitcoin Spot ETFs have been a success so far, “netting more than $66 billion” of cash inflows under three months. Mr. Schiffrin further indicated that this success emphasizes the reasoning the SEC may scrutinize the Ethereum Spot ETF.

There is also growing skepticism in the market surrounding whether the SEC will approve the Ethereum Spot ETFs. For example, James Seyffart, an ETF analyst for Bloomberg Intelligence posted on March 19, 2024, that his “cautiously optimistic attitude” around the approval has changed and that Bloomberg Intelligence now believes the ETFs will ultimately be denied this May.

The SEC’s decision to approve or deny applications for Ethereum Spot ETFs will give public investors and brokerage firms insight in the SEC’s position on crypto-based Spot ETFs… Was Bitcoin the exception or was it just the beginning? Time will tell.