The cryptocurrency realm has witnessed a pivotal development as the United States Securities and Exchange Commission (SEC) granted its approval for spot Ethereum exchange-traded funds (ETFs). This landmark decision has ignited a wave of enthusiasm within the digital asset community, paving the way for increased accessibility and mainstream adoption of the second-largest cryptocurrency by market capitalization.
On May 23rd, the SEC took a monumental step by greenlighting the 19b-4 filings submitted by numerous prominent issuers of spot Ethereum ETFs. Among the esteemed companies that received the regulatory nod are industry heavyweights such as VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK Invest/21Shares, Invesco/Galaxy, and Bitwise.
However, it’s worth noting that the SEC’s approval did not extend to Hashdex, whose deadline for filing expires on May 30th. The trading of these ETFs will commence once the SEC formally signs off on the registration statements filed on Form S-1.
In the lead-up to the SEC’s approval, the price of Ethereum (ETH) surged to an impressive $3,900, reflecting the market’s anticipation of this pivotal event. However, as the news broke, the cryptocurrency’s value experienced a temporary dip, settling around $3,680 at the time of writing.
The heightened volatility in the market was further accentuated by substantial liquidations, with data from Coinglass indicating that the total liquidations reached a staggering $382 million over a 24-hour period – the highest figure since the beginning of May. Interestingly, a significant portion of these liquidations, amounting to $149 million, stemmed from long positions on Ethereum.
Bloomberg’s senior exchange analyst, James Seyffart, was among the first to provide insights into the SEC’s decision. He cautioned that the approval does not imply an immediate commencement of trading for the ETFs, clarifying that the 19b-4 approval is merely the first step. The subsequent authorization of the S-1 documents is still required, a process that could span several weeks or potentially longer.
Matthew Sigel, the Head of Digital Asset Research at VanEck, expressed confidence in the positive trajectory of the industry, stating, “The improving regulatory landscape will lead to further victories for digital asset investors and developers through new legislation and projects that attract investment into Bitcoin, Ethereum, and other open-source software.”
Representatives from Bitwise Asset Management hailed the approval of spot Ethereum ETFs as a “historic step that will draw attention to the second-largest cryptocurrency.”
Industry experts have interpreted the SEC’s approval of Ethereum-based ETFs as an implicit acknowledgment that the cryptocurrency does not qualify as a security. During the Bankless podcast, Seyffart elaborated on this perspective, explaining, “These are trust shares based on commodities, so the SEC, by approving them, is directly stating that it does not intend to apply the security definition to ETH.”
Justin Browder, a digital asset lawyer, echoed this sentiment, asserting that if the Ethereum ETFs receive S-1 approval, “the debate will be settled – Ether is not a security.”
Adam Cochran, a partner at Cinneamhain Ventures, took the analysis a step further, suggesting that the SEC’s mindset could potentially extend to tokens of other projects. He emphasized, “ETH is a commodity, even with its current attributes. This means we can apply this to many other projects, determining what elements matter for security. Today, many things have likely become commodities, even if some don’t realize it yet.”
However, some experts cautioned that the SEC might continue to pursue industry participants engaged in Ethereum offerings. Seyffart acknowledged this possibility, stating, “They’ll try to thread that needle and say that while they’re not going to call ETH itself a security, staked ETH could potentially be a security. […] I don’t think they’re going to do that anytime soon.”
Notably, the decision to launch Ethereum-based funds was made by the SEC’s Division of Trading and Markets, rather than by the agency’s Chair, Gary Gensler, and four other senior officials. The order explicitly states, “For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.”
Seyffart characterized the agency’s use of delegated authority as a standard practice, suggesting that “this is typically how it’s done.”
It’s worth mentioning that on May 23rd, the United States House of Representatives passed the FIT21 bill, aimed at regulating the cryptocurrency industry as a whole. The legislation delineates the respective jurisdictions of the SEC and the Commodity Futures Trading Commission (CFTC) in overseeing the sector.
The SEC’s approval of spot Ethereum ETFs has sparked optimism within the digital asset community, with many anticipating a surge in mainstream adoption and increased investment opportunities. By granting regulatory clearance, the SEC has effectively acknowledged Ethereum’s status as a non-security asset, potentially paving the way for similar considerations for other cryptocurrencies and blockchain projects.
As the industry eagerly awaits the final stages of the approval process, market participants and enthusiasts alike are poised to witness the potential transformative impact of this landmark decision on the broader cryptocurrency ecosystem.
