SEC Hints at Last-Second Approval of Ethereum ETFs, But ‘No Issuer Ready’

It looked like an almost certain rejection by the Securities and Exchange Commission, but just hours before the May 23 deadline to rule on VanEck’s application to launch a spot Ethereum exchange-traded fund, it appears the SEC may be reconsidering.

CoinDesk first reported on Monday that regulators “abruptly” asked the nine potential issuers that filed to list and trade shares of the ETFs to update their 19b-4 filings on an expedited basis. A Form 19b-4 is what an exchange like the NYSE requires for the introduction of new products; In other words, applicants and the exchange ask the SEC for permission to add the ETFs to their platforms.

Since rumors began circulating on Monday afternoon, the price of Ether has skyrocketed nearly 20%, trading near $3,750 around 1:30 pm ET on Tuesday.

As VanEck is the first exchange to have applied, receiving approval would hypothetically be a green light for others waiting to hear about their own 19b-4s. When rumors began to circulate on Monday that the applications were evolving, Bloomberg analysts updated their approval odds from 25% to 75%.

But the news has left broadcasters in a bind. Every issuer that Bloomberg ETF analyst James Seyffart has spoken to has been “caught off guard by the SEC’s 180-degree turn,” he said. Fortune. The agency contacted taxpayers with comments and requested updates just three days before the deadline, he explained.

“This is not standard operating procedure, and everyone from issuers to exchanges to attorneys to market makers and more are scrambling to be ready for potential approval and to comply with SEC requirements,” he adds. Seyffart. The hasty nature of the pivot suggests it was likely a “political move,” the result of a “top-down decision” by the Biden administration, she speculates. “No issuer is prepared,” he wrote in X.

So far, Grayscale is the only potential issuer to post an updated 19b-4 on the New York Stock Exchange website, for its transfer request of its Ethereum Mini Trust ETF. Meanwhile, Fidelity abandoned its plans to include Ether in its ETF, according to an S-1 update filed with the SEC early Tuesday. In previous filings, the company said it intended to “stake a portion of the trust assets” to “one or more” infrastructure providers, but will now “not stake the Ether” stored at the custodian.

Staking involves committing Ether to protect the network in exchange for a return, which is currently around 3%, according to data from betting service Lido. Ark and Franklin Templeton have also considered betting on their apps. In today’s updated 19b-4 from Grayscale, the company confirmed that it will not participate in betting. Both Grayscale’s foregrounding of this and Fidelity’s omission of it suggest that the SEC may have requested a ban on participation. Vance Spencer, co-founder of Framework Ventures, said Fortune He estimates that the SEC’s last-minute requests included guidance on betting.

Staking the underlying Ether in the ETF has been considered a reason the SEC could reject applications, as Chairman Gary Gensler expressed concerns last March that digital assets using staking protocols could be considered securities under federal law. . Staking could be “a significant complication,” Bitwise CIO Matt Hougan previously said. Fortune.

However, even if the SEC approves VanEck’s 19b-4 on Thursday, it does not guarantee clearance, as exchanges will need S-1 filings from issuers before products begin trading. When applying to launch a new security, an S-1 is the form that describes to potential investors and the SEC the structure of the asset, how it will be managed and, in this case, how it plans to reflect the performance of the asset. underlying asset: ether tokens.

But the S-1s could take “weeks or months” to be approved, Seyffart wrote in X. “That said, if we are correct and we see these theoretical approvals later this week. “It should mean that S-1 approvals are a matter of ‘When’ and not ‘If.’”

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