Only a few weeks ago, Wall Street businesses introduced exchange-traded products that leverage bitcoin. Currently, they aim to provide regular investors with funds that are invested in a more volatile and smaller crypto asset.
The second-largest cryptocurrency, ether, is to be held by the first U.S.-listed exchange-traded fund (ETF) that at least ten companies, including BlackRock and Fidelity Investments, have applied to start. For every investment made, the firms would get management fees, just like they do with bitcoin and other ETFs.
The Ethereum blockchain’s native token, ether, rose beyond $3,200 on Tuesday for the first time since April 2022 in anticipation of the possible approvals. In contrast to bitcoin’s worth of over $1 trillion, this gave it a market cap of roughly $390 billion.
The initial application for a spot ether ETF must be approved or rejected by the Securities and Exchange Commission by May 1st. The decision on that application must be applied to the other applicants at the same time. If approved, critics claim, ETFs backed by more speculative cryptocurrency assets may become available, exposing investors to risks they may not be aware of.
According to Ben Schiffrin, director of securities policy at Better Markets, an organization that pushes for stricter financial rules, “ether is just a very volatile asset and subject to tremendous price swings.”
Not all cryptocurrencies are created equal; over the years, many have appeared, and only a handful of them have grown significantly in size. This includes volatility and the possibility for market manipulation.
The SEC has not made it apparent if it will accept or deny the ether applications. Since companies applied for spot bitcoin ETFs, a number of other factors have come into play.
The SEC had been consistently rejecting applications for spot bitcoin ETFs for years, citing the cryptocurrency’s vulnerability to fraud. That was prior to the government being forced to authorize such funding last month by an August court judgment. Nine of them saw an immediate infusion of around $13 billion from investors, according to data from JPMorgan and Bloomberg. According to some observers, the ether funds are expected to follow if the bitcoin funds are approved.
The SEC referenced the strong correlation between bitcoin and bitcoin futures prices in approving the bitcoin funds. The only other cryptocurrency that is traded in futures contracts on the Commodity Futures Trading Commission-regulated CME is ether.
Though the funds haven’t drawn much interest, the SEC approved the introduction of more than six futures-based ether exchange-traded funds (ETFs) in October.
Notable changes to the applications that were granted in January for spot bitcoin ETFs included details on the funds’ operational procedures. Similar information is listed in the spot ether ETF applications.
Another reason to believe clearance is imminent is that such technical concerns have been resolved, according to ETF expert James Seyffart. According to his base scenario, these will be approved by 2024, he stated. Approval is still far from guaranteed due to significant distinctions between ether and bitcoin.
To begin with, SEC Chair Gary Gensler has continuously referred to bitcoin as a commodity but hasn’t made it clear if ether is a commodity or a security. The distinction establishes which agency is in charge of the asset and the rules it must follow.
An further obstacle to approval could be a crucial feature of ether that has been under scrutiny by the SEC. Ethereum network users have the option to donate their holdings and processing power in exchange for helping to verify transactions. People can earn interest on their assets through a technique known as staking.
Last February, the SEC ordered Kraken, a cryptocurrency exchange, to stop offering staking in the United States, while Coinbase Global was sued a few months later, claiming that its staking service is unregistered securities.
Seyffart believes that the SEC may have approved the ether ETFs but prohibited staking in them. Different approaches to the matter have been indicated by the applicants. The $9.4 billion Ether trust, managed by cryptocurrency asset management Grayscale Investments, has applied to become an ETF. In a blog post, the company stated that it does not allow staking in the trust because of risks and insufficient tax guidance.
Franklin Templeton disclosed in its application that it may use other companies to stake a portion of the assets in its exchange-traded fund (ETF) and add interest collected to the fund as revenue.
The funds are still not anticipated to be nearly as well-liked as their bitcoin equivalents, even if the SEC approves any of the ideas. Wall Street businesses will probably still continue to provide them despite this.
Issuers are surely licking their chops at the thought of releasing spot ether ETFs, given the enormous early success of spot bitcoin ETFs. stated Nate Geraci, president of the financial advisory company ETF Store.
