US SEC anticipated to disclaim spot ether ETFs subsequent month, business sources say

By Suzanne McGee and Hannah Lang

(Reuters) – U.S. issuers and different corporations anticipate the Securities and Trade Fee to disclaim their functions to launch exchange-traded funds (ETFs) tied to the worth of ether after discouraging conferences with the company in latest weeks, 4 individuals mentioned.

VanEck, ARK Funding Administration and 7 different issuers have filed with the SEC to listing ETFs that will observe the spot value of the world’s second-largest cryptocurrency after bitcoin. The SEC should resolve on VanEck’s and ARK’s filings, that are first in line, by Could 23 and Could 24 respectively.

Latest conferences between issuers and the SEC have been one-sided and company workers haven’t mentioned substantive particulars in regards to the proposed merchandise, mentioned 4 individuals who participated.

That’s in distinction to the intensive and detailed discussions between issuers and the company within the weeks earlier than its landmark approval of spot bitcoin ETFs in January, mentioned the individuals who declined to be recognized as a result of the talks are non-public.

The company, which is led by crypto skeptic Gary Gensler, rejected spot bitcoin ETFs for greater than a decade over market manipulation worries however was compelled to approve them after Grayscale Investments received a courtroom problem.

Issuers argued within the conferences that these ETFs and ether futures-based ETFs the SEC authorised in October set a precedent for the spot ether merchandise, and have tried to deal with potential regulatory issues, the individuals mentioned. SEC workers listened however didn’t spell out particular issues or typically ask questions, suggesting the company will deny the filings, they added.

That will be a setback for the crypto business which had hoped spot bitcoin ETFs would pave the way in which for different comparable merchandise and push cryptocurrencies into the mainstream.

“It appears extra possible that approval might be delayed till later in 2024, or longer,” mentioned Todd Rosenbluth, head of ETF evaluation at knowledge agency VettaFi, who’s monitoring the problem intently. “The regulatory image nonetheless appears cloudy.”

Some issuers mentioned they nonetheless plan to file further disclosure paperwork with the SEC to maintain the dialog going.

A SEC spokesperson mentioned it doesn’t touch upon particular person filings. VanEck CEO Jan van Eck advised CNBC this month the agency’s utility would “most likely be rejected.”

ARK didn’t return requests for remark. When requested by Reuters at an occasion this week about its ether utility, ARK CEO Cathie Wooden mentioned solely that ether might turn into a significant asset class.

An anticipated thumbs-down is mirrored in ether’s value, mentioned Hong Fang, president of crypto alternate OKX. Whereas the cryptocurrency is up 39% this 12 months, it has struggled to maintain tempo with bitcoin, which is up greater than 51% and scaled new peaks final month.

“There’s extra downward stress on costs as individuals construct that expectation in,” mentioned Fang.

‘MORE DATA’

The SEC has held only a handful of conferences on the ether merchandise to this point, in accordance with the sources and SEC information.

The one assembly disclosed by the regulator was final month with crypto alternate Coinbase (O:). It associated to Grayscale’s utility to transform its Belief into an ETF, for which Coinbase is the custodian.

The SEC authorised spot bitcoin ETFs on the premise that current market surveillance mechanisms for bitcoin futures ETFs, which it authorised in 2021, have been ok for spot ETFs too.

Coinbase argued that the identical rationale applies to the spot ether merchandise, since ether futures and the spot market are extremely correlated, in accordance with the SEC disclosure.

If the SEC does reject ether ETFs, a number of candidates anticipate it to take action on account of broad points, corresponding to the character and depth of statistical knowledge on the underlying ether market.

The company might argue it has had restricted time to look at ether futures, mentioned Matt Hougan, chief funding officer at Bitwise Asset Administration, which has filed for a spot ether ETF.

“I believe that will be the mechanical cause why it will get pushed out is they only need to see extra knowledge.”

Some say rejection might invite one other lawsuit.

“It is solely doable we’ll ultimately see ether ETFs,” mentioned one of many sources. “However not till anyone is denied and goes to the courts.”