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The US Securities and Exchange Commission (SEC) approved the first spot ethereum exchange-traded funds (ETFs), marking a major milestone for the crypto industry. The decision, announced today, allows asset managers such as Grayscale, Fidelity and Bitwise to launch ETFs that directly track the price of ethereum (eth).
ethereum rose 2% on the news and was trading at $3,900 at press time, according to data from CryptoSlate.
Approval follows a rigorous application process and extensive market analysis. Grayscale Chief Legal Officer Craig Salm previously highlighted that the SEC had already addressed key issues during the approval of bitcoin spot ETFs, which are also applicable to ethereum ETFs. These issues include origination and redemption processes, cash versus in-kind transactions, and custody issues. Salm emphasized that the SEC's prior engagement with bitcoin ETF issuers laid the groundwork for ethereum ETFs, pointing to the strong correlation between eth futures and spot prices as a compelling factor for their approval.
The SEC's decision comes after a period of uncertainty and skepticism among market analysts. Bloomberg analyst Eric Balchunas had previously estimated a 25% chance of approval by May 23, citing the SEC's lack of commitment compared to the bitcoin ETF approval process. However, the approval of bitcoin spot ETFs earlier this year, the approval of the Hong Kong eth ETF, and recent cryptocurrency victories in Congress had raised hopes among cryptocurrency advocates despite the historically cautious stance of the SEC under the leadership of Gary Gensler.
The approval process included a public comment period, during which the SEC sought comments on various aspects of the proposed ETFs, including fund custody, creation and redemption models, and sponsor fees. This phase mirrored the approach taken with one-off bitcoin ETF applications, encouraging feedback from US citizens and organizations.
The approval of ethereum spot ETFs is expected to have a significant impact on the digital asset market. Hong Fang, president of cryptocurrency exchange OKX, noted that while ethereum's price has risen this year, it has lagged behind bitcoin's gains, a disparity likely influenced by the market's anticipation of the SEC's decision. The approval is expected to boost investor confidence and increase market liquidity.
Several issuers filed applications to list their ETF on the NYSE Arca exchange, with Coinbase Custody as custodian. Bitwise analysis demonstrated a strong correlation between the eth spot market and the CME eth futures market, a critical factor in meeting SEC requirements for monitoring potential market manipulation.
Despite the positive result, some industry experts had expressed concerns about the SEC's approach. Participants in recent meetings with the SEC described the talks as one-sided, and agency staff withheld substantial comment on the proposals. This is in contrast to the detailed discussions that preceded the SEC's approval of bitcoin spot ETFs.
The approval also comes amid ongoing regulatory scrutiny over the classification of ethereum as a security or commodity. Reports suggest that the SEC is investigating ethereum's regulatory classification, adding uncertainty to approval prospects. However, today's decision indicates a favorable stance towards ethereum-based financial products and a possible indication that ethereum may be considered a commodity.
The approval is a landmark event for the cryptocurrency industry, reflecting the growing interest in cryptoasset financial products among traditional investment firms. As the market reacts to this development, stakeholders will closely monitor the performance and impact of these newly approved ETFs.
