Ethereum ETF is approved by the US SEC

Ethereum ETF is approved by the US SEC

The U.S. Securities and Exchange Commission (SEC) has recently given the green light to eight spot Ethereum ETFs in a consolidated order. This significant move comes shortly after the agency's historic approval of spot Bitcoin ETFs.

In a strategic decision, the SEC has accepted the 19b-4 forms for Ethereum ETFs from leading financial firms including BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy, and Franklin Templeton. Although these approvals mark a crucial step forward, the ETF issuers must still wait for their S-1 registration statements to become effective before they can commence trading.

The process of getting S-1 forms to go effective has only recently started, with the SEC initiating discussions with the issuers. While the exact duration of this approval process remains uncertain, industry analysts suggest it might range from a few weeks to several months. According to Bloomberg ETF analyst James Seyffart, although expedited efforts could shorten the timeline to a couple of weeks, historical instances indicate that it could extend beyond three months.

Ethereum ETF Amid Broader Digital Asset Strategy

BlackRock initiated a move to introduce an ether (ETH) ETF in November last year, signaling an interest that was underscored by CEO Larry Fink's discussions on the future of tokenization—representing traditional assets on blockchain networks.

However, launching an ether ETF introduces complexities, particularly in how BlackRock plans to educate its clientele about the intricate Ethereum blockchain ecosystem. Additionally, the need for another crypto ETF may be questioned by investors who have seen their portfolio's risk-adjusted returns (measured by Sharpe ratios) already enhanced by the inclusion of a spot bitcoin ETF.

Addressing the broader implications of digital assets, Mitchnick, a spokesperson for BlackRock, emphasized the firm's strategic focus on three fundamental areas: cryptoassets, stablecoins, and tokenization. He noted, "These pillars are interconnected, which is crucial for our clients to grasp. The insights we gain and the strategies we develop in one area invariably enhance our approaches in the others, enriching our overall understanding and offerings in the digital asset space".

Ethereum ETF Showdown

Social media has been buzzing with discussions on the "ETF assets under management (AUM) horse race", especially focusing on the rivalry between IBIT and Grayscale’s GBTC, which is seen as a longstanding player since its BTC trust transitioned to an ETF. Recent figures show IBIT's assets at approximately $17.2 billion, while GBTC leads with about $24.3 billion.

A significant portion of IBIT’s current holdings has transitioned from Grayscale, alongside inflows potentially stemming from higher-cost ETFs in international markets like Canada and Europe. Additionally, some assets have shifted from bitcoin futures ETFs to newer spot-based products.

Mitchnick points out that existing bitcoin investors are increasingly opting to hold the cryptocurrency in traditional brokerage accounts, avoiding the complexities of custody, tax reporting, and other operational hurdles linked with direct exchange storage. While achieving the status of the largest spot bitcoin ETF would be noteworthy, BlackRock is prioritizing client education over direct competition in the ETF space. This approach reflects a broader strategy of focusing on client needs and understanding, rather than merely leading in asset accumulation.

SEC Takes a U-Turn on Ethereum ETF Approval

Before this week, there was widespread belief that the SEC might not approve Ethereum ETFs, primarily due to the apparent lack of interaction between the SEC and the ETF issuers. This perspective shifted dramatically earlier in the week when the SEC unexpectedly began discussions with issuers, requesting quick revisions and resubmissions of their 19b-4 forms. This sudden pivot caught some within the SEC off guard, signaling a major reversal in approach.

The sudden shift led to speculations about the motivations behind this change. A source speaking to The Block described the situation as "completely unprecedented" and "entirely political".

In the lead-up to these approvals, a bipartisan group of House lawmakers had pushed for the SEC to greenlight the ETFs, arguing that it would align with the SEC’s earlier decisions on spot Bitcoin ETPs and reinforce the legal basis used in those decisions.

Amidst growing expectations of approval, the discount on Grayscale’s Ethereum Trust narrowed significantly, from -24% to -6%. This adjustment is crucial as the trust’s transformation into an ETF will allow shareholders to exchange their shares for the cash equivalent of the underlying Ethereum.

Since the approval of Bitcoin ETFs, these funds have attracted an additional 207,000 bitcoins (worth approximately $14 billion), adding to the 621,000 bitcoins ($42 billion) held by the Grayscale Bitcoin Trust at the time of its conversion to an ETF.

Despite these developments, the Ethereum ETFs might not achieve the same level of success as their Bitcoin counterparts. Bloomberg ETF analyst Eric Balchunas suggests that Ethereum ETFs could capture about 10 to 15% of the assets that flowed into Bitcoin ETFs, which would total around $5 to $8 billion. Balchunas notes, "For any normal launch in the first couple of years, that's pretty good".

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