Just days ago, it seemed almost certain that the Securities and Exchange Commission was poised to veto BlackRock's efforts.
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VanEck and others start holding exchange-traded funds
ether.
It is now increasingly likely that such products will be developed.
The change comes after SEC officials told the exchanges on Monday that they are leaning toward approving the products, according to people familiar with the matter. The agency has issued comments on the application, and if it is resolved within the deadline, it could be approved as early as this week.
Ether is the second largest cryptocurrency with a market value of $455 billion. Only Bitcoin is big.
The SEC did not respond to requests for comment. The agency has so far declined to comment on individual applications.
The SEC has a final deadline on Thursday to approve or reject a so-called 19b-4 filing by VanEck that would pave the way for the launch of an ETF that holds spot ether, with similar deadlines set to come in the coming months for exchanges to file on behalf of firms including ARK Invest, 21Shares, Grayscale Investments, Fidelity, BlackRock and Franklin Resources.
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While ETFs that hold Ether futures are permitted by the SEC, ETFs that hold the currency itself are not.
One of the people said the SEC provided most issuers with feedback on their filings, even though the SEC's response deadline was approaching the end of the year. This could indicate that the SEC wants to coordinate the launch of multiple Ether ETFs at once.
That's what happened with the first Spot Bitcoin ETF, which launched in January. After years of rejecting attempts to launch such ETFs, the SEC has allowed many to come to market simultaneously.
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These funds have amassed billions of dollars in assets, and their launches have helped push Bitcoin up 60% this year.
Prices rose on Tuesday after reports that the SEC was close to approving the Ether ETF. On Tuesday morning, the price was up 23% in the past 24 hours to $3,790, while Bitcoin was up 5% to $70,350.
The approval of ETFs could open up the ether market to institutional investors such as endowments and pension funds who are unable or unwilling to invest directly in cryptocurrencies. Interest in even smaller cryptocurrencies like Solana and Avalanche may also increase.
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Investors are factoring in the increasing likelihood that other tokens will eventually be incorporated into the fund as well.
It could be good news for Grayscale Ethereum Trust investors once the ETF hits the market.
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The trust has been around for years, but it trades like a closed-end fund, with market prices often well below the value of the ether it holds. Grayscale aims to convert the trust into his ETF, which would eliminate the discount and provide investors with immediate profits. On Monday, the trust traded at a 12% discount to the value of its Ether holdings.
Even if the SEC approves the first 19b-4 filing this week, that doesn't necessarily mean the Ether ETF will launch at the same time. Officials said regulators have yet to provide feedback to at least some issuers on another key part of ETF launches: the S-1 filings that accompany the issuance of new securities. These documents detail how the fund is operated and disclose its risks and costs.
Unlike 19b-4 filings, these documents do not have a deadline by which the SEC must respond, which could theoretically delay SEC approval by weeks or months. That could ultimately lead to lawsuits from issuers seeking to launch.
The journey to Ether ETF is not over yet, but the path seems much shorter than it was a few days ago.
Email Joe Light at joe.light@barrons.com.
