The SEC has begun commenting on Grayscale, Fidelity, and Bitwise's applications to launch a spot Ethereum exchange-traded fund (ETF).
The notice applies to proposed rule changes that would allow two exchanges, Cboe BZX and NYSE Arca, to list and trade the shares of the three funds.
Comments will be published for 21 days after they are posted in the Federal Register.
This phase is a routine step in the ETF approval process and mirrors the approach taken with the Spot Bitcoin ETF application, which previously encouraged feedback from U.S. citizens and organizations.
market correlation
Each notice describes matters that are expected to affect the SEC in approving or rejecting the proposed Spot Ethereum ETF.
Most importantly, this notice discusses the correlation between ETH futures and ETH spot markets, and whether the spot ETH market is of significant size in relation to the futures ETH market. This correlation is significant because the SEC has previously approved the Futures ETH ETF.
NYSE Arca and Grayscale cited Coinbase analysis that demonstrates the correlation and shows that fraud and manipulation are less likely to occur in the spot ETH market. The companies also said that, contrary to the SEC's assertions, the Investment Company Act of 1940 does not provide relevant protections that would lead to the rejection of certain spot virtual currency ETFs.
Cboe and Fidelity claimed that their proposals and analysis prove that the spot ETH market is appropriately sized. NYSE Arca and Bitwise cited their analysis for that purpose.
The notice also seeks comment on other issues, including fund management, creation and redemption models, and sponsor fees. Requests for comment are routine and do not indicate whether a fund is likely to receive approval.
Ethereum ETF
This request for comment follows a history of delays in decisions by the SEC regarding Spot Ethereum ETFs. The involvement of prominent fund managers such as Grayscale, Fidelity, and Bitwise highlights the growing importance and interest in crypto-based financial products among traditional investment firms.
The initiative by three fund managers aims to create a Spot ETH ETF that will allow investors to buy stocks that reflect the price of Ethereum. Following the SEC's approval of 11 Bitcoin ETFs in January, which have seen significant inflows and popularity since then, there is a strong push to secure a similar regulatory green light for Ethereum-based products. .
Notably, Coinbase held discussions with the SEC last week regarding Grayscale's Ethereum ETF proposal. Grayscale aims to convert its existing Ethereum Trust into a Spot ETH ETF, a move Coinbase publicly supported in a recent presentation to regulators.
Demand for Ethereum ETFs is occurring amid mixed market sentiment. While the SEC’s approval of the Bitcoin Spot ETF marks an important milestone, analysts remain divided on the prospects for the Ethereum ETF.
Some speculate that the SEC may delay approval to temporarily separate Bitcoin and Ethereum products. Nevertheless, companies like Standard Chartered have expressed optimism and expect SEC approval by May.
