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SEC Opens Comments on Grayscale, Fidelity, and Bitwise Ethereum ETF Applications
The Securities and Exchange Commission (SEC) has initiated a period for public comments regarding the applications submitted by Grayscale, Fidelity, and Bitwise to launch spot Ethereum exchange-traded funds (ETFs). The regulatory agency’s review encompasses proposed rule changes that would enable two major exchanges, Cboe BZX and NYSE Arca, to list and trade shares of these three funds. Comments will be accepted for a 21-day period following the publication in the federal register. This step is a standard part of the approval process for ETFs, aligning with the approach taken for previous spot Bitcoin ETF applications, which involved soliciting feedback from US citizens and organizations.
Market Correlation and Regulatory Considerations
The SEC notices issued in connection with these applications delve into various factors that are expected to influence the decision-making process for approving or denying the proposed spot Ethereum ETFs. Of particular importance are discussions on the correlation between Ethereum (ETH) futures and the spot ETH markets, as well as the relative size of the spot market in relation to futures trading. This correlation holds significance given the SEC’s prior approval of futures-based Ethereum ETFs.
NYSE Arca and Grayscale have referenced an analysis conducted by Coinbase to demonstrate the robust correlation between the two markets, asserting that concerns over fraud and manipulation in the spot ETH market are unfounded. Moreover, they argue that the provisions of the Investment Company Act of 1940 do not offer sufficient grounds for rejecting spot crypto ETF proposals, contrary to the SEC’s assertions. On the other hand, Cboe and Fidelity have presented their own data and analysis to support the contention that the spot ETH market is sufficiently robust. NYSE Arca and Bitwise have also provided evidence to bolster this claim.
Aside from market correlations, the SEC notices also invite comments on ancillary issues such as custody arrangements for funds, creation and redemption processes, and sponsorship fees. It is important to note that the issuance of a request for public comments is a procedural step and does not necessarily indicate the SEC’s stance on the likelihood of approving the funds.
Push for Ethereum ETFs and Industry Trends
The call for public comments comes against the backdrop of prior delays by the SEC in rendering decisions on spot Ethereum ETFs. The participation of prominent asset managers like Grayscale, Fidelity, and Bitwise underscores the increasing significance and interest from traditional financial institutions in cryptocurrency-based investment products.
Given the SEC’s green light for 11 Bitcoin ETFs in January, which have since garnered considerable investor interest, there is a concerted effort to secure similar regulatory approvals for Ethereum-focused offerings. Notably, Coinbase recently engaged in discussions with the SEC concerning Grayscale’s proposal to convert its existing Ethereum Trust into a spot ETH ETF, a move endorsed by Coinbase in a recent presentation to the regulator.
Amidst divergent market sentiments, analysts remain divided on the prospects for Ethereum ETF approvals. While some anticipate potential delays by the SEC to create a temporal separation between Bitcoin and Ethereum products, others like Standard Chartered express optimism, predicting SEC approval by May.
As the industry awaits further developments, the Ethereum ETF applications represent a pivotal moment in the evolution of cryptocurrency investment products, signaling the growing convergence between traditional financial markets and the burgeoning digital asset ecosystem.
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