Spot Ethereum ETF Proposals Face Extended Review by SEC

The race for the approval of a Spot Ethereum ETF in the United States has taken another turn, with the Securities and Exchange Commission (SEC) delaying its decision on applications from leading asset managers Grayscale Investments and Franklin Templeton.

TLDR

• Grayscale filed Form S-3 with the SEC for its Spot Ethereum ETF application, aiming to convert its Ethereum Trust (ETHE) into a Spot Ethereum ETF.
• Grayscale also filed an S-1 filing for a mini Ethereum ETF, following a similar move for a mini Bitcoin ETF.
• The SEC delayed its decision on Grayscale’s and Franklin Templeton’s Spot Ethereum ETF applications until June 23 and June 11, respectively.
• The SEC cited the need for more time to consider the proposed rule changes and the issues raised therein.
• Analysts express pessimism about the SEC’s approval of Spot Ethereum ETFs, with concerns over Ethereum’s staking feature and the SEC Chair’s stance on crypto assets as securities.

Grayscale, a prominent player in the crypto space, has been actively pursuing the conversion of its Ethereum Trust (ETHE) into a Spot Ethereum ETF. In a significant move, the company filed Form S-3 with the SEC, a crucial step in its strategy to gain approval for its Spot Ethereum ETF application. By submitting this form, Grayscale positions itself with the necessary documentation for the SEC to consider its proposal.

Grayscale has filed an S-1 filing for a mini Ethereum ETF, marked by the ticker “ETH.” This follows a similar move in March when the asset manager submitted an S-1 filing for a mini Bitcoin ETF, under the ticker “BTC,” which is still pending SEC approval.

Today, we filed a registration statement on Form S-3 to register shares of Grayscale Ethereum Trust (OTCQX: $ETHE) under the Securities Act of 1933. This is another important step toward uplisting ETHE as an ETF*. (1/6) pic.twitter.com/Siy0fUkXTl

— Grayscale (@Grayscale) April 23, 2024

Grayscale’s efforts extend beyond regulatory filings, as the company is also actively pursuing the listing of its Ethereum Trust on the NYSE Arca exchange as a Spot Ethereum ETF. This involves NYSE Arca’s filing of Form 19b-4, complemented by Grayscale’s Form S-3 submission. If approved, the Ethereum Trust shares would trade under the ticker symbol “ETHE,” with ongoing share issuance contingent upon NYSE Arca’s application effectiveness and Form S-3 registration.

However, despite Grayscale’s proactive approach, the SEC has delayed decisions on applications from both Grayscale and Franklin Templeton. The regulator cited the need for more time to consider the proposed rule changes and the issues raised therein, pushing the deadline for Grayscale’s application to June 23 and Franklin Templeton’s to June 11.

This delay has fueled speculation and sentiment among industry players, with some expressing concerns over the lack of substantial engagement from the SEC staff. They interpret this as a potential precursor to denial on the looming deadlines. While some issuers remain hopeful, citing similarities between Ethereum and Bitcoin ETF circumstances, others are less optimistic.

The SEC is again dragging its feet on Ethereum ETF proposals, delaying decisions on applications from both Grayscale and Franklin Templeton. Click to read: https://t.co/Sm6dvEodSO

— Decrypt ???? (@decryptmedia) April 23, 2024

Critics point to unresolved issues surrounding Ethereum’s staking feature, suggesting that these complexities could hinder approval. There is also speculation about SEC Chairman Gary Gensler’s stance, as some believe he would not approve the Spot Ethereum ETFs and may find new grounds for denial, potentially leading to a renewed lawsuit from Grayscale, similar to the legal battle over Spot Bitcoin ETFs.

Analysts at investment bank JP Morgan estimate that there is less than a 50% chance that a Spot Ethereum ETF will be approved by the May deadline. This cautious outlook reflects the SEC’s determination to thoroughly examine the submitted files to ensure adequate protection of investors’ interests.

While Bitcoin ETFs have already made their entrance on the American markets, their Ethereum counterparts are still awaiting their turn. The SEC’s decision, whether positive or negative, will undoubtedly have a significant impact on the cryptocurrency industry and the democratization of these digital assets to the general public.

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