The U.S. Securities and Exchange Commission (SEC) appears set to reject the application for a Spot Ether exchange-traded fund (ETF), with recent internal meetings painting a bleak future for the proposed product.
The SEC is likely to hold off on approving a spot ETF tracking the second-largest cryptocurrency, Reuters reports. Regulators are expected to decide on a number of applications. The securities watchdog is expected to make a decision on the applications issued by VanEck and Ark at the end of May.
According to the report, four anonymous SEC officials revealed that preliminary discussions between regulators and issuers did not address “substantive details” about the ETF's inner workings. . The conversation, described as “one-sided”, has not yet addressed the details of the proposal, with issuers claiming the market is ripe for spot ETFs.
While issuers are basing their discussion on the relative success of Ether futures-based ETFs approved in 2023, the SEC may ask follow-up questions or raise specific concerns, according to people familiar with the matter. He said he was unable to pull it out.
The SEC's laid-back approach stands in contrast to its aggressive stance in the months leading up to the approval of the Spot Bitcoin ETF. Market participants have been touting Ethereum as the next best choice since Bitcoin ETFs were approved in January, but skeptics have grown wary of a lengthy battle with the SEC led by Gensler.
“Approval appears likely to be delayed until late 2024 or even later.” Todd Rosenbluth, an executive at analytics firm Bettafi, said: “The regulatory landscape still appears cloudy.”
Enthusiasm among issuers has waned since early April, with VanEck CEO Jan van Eck predicting that the company's application could be “rejected” by the SEC. Meanwhile, other issuers remain optimistic about forcing the commission's hand through new text to address persistent concerns.
Aside from VanEck and Ark, the SEC still must accept applications from seven other issuers, including 21Shares, Fidelity, BlackRock, and Grayscale.
Potential reasons for rejection
In the case of a denial, the SEC could argue that there is insufficient time to evaluate market oversight mechanisms before rolling out a spot Ether ETF. Experts say regulators may be keen to request more time to gather more information on product statistics.
“I think the mechanical reason it gets pushed out is because they just want to see more data.” Matt Hogan, chief investment officer at Bitwise Asset Management, said:
However, there are concerns that issuers, like Grayscale, could end up dragging the SEC to court in building a Bitcoin spot ETF.
