Key points:

  • US issuers do not expect their applications to launch ETFs on Ethereum to be approved in the coming month.
  • Recent meetings between issuers and the SEC have been one-sided, with no discussion of product details.
  • Despite the issuers’ arguments, the SEC may reject applications due to problems with Ethereum market data.

Given the results of disappointing meetings with the US Securities and Exchange Commission (SEC) in recent weeks, US issuers and other stakeholders are expressing low expectations for approval of their applications to launch Ethereum-based exchange-traded funds (ETFs).

The negotiation process

VanEck, ARK Investment Management and seven other issuers have filed applications with the Securities and Exchange Commission (SEC) to list exchange-traded funds (ETFs) linked to the spot price of ether, the second-largest cryptocurrency after Bitcoin. The SEC must rule on VanEck’s and ARK’s applications, which are first in line, by May 23 and 24, respectively.

Sources familiar with the matter say recent meetings between issuers and the SEC have been unilateral, without discussing substantive details of the products being offered. This contrasts with the intense and detailed discussions that preceded the SEC’s approval of spot Bitcoin ETFs in January.

Issuer representatives at the meetings cited the precedent set by October’s approval of ether futures ETFs, as well as measures to address potential regulatory concerns. However, SEC staff were not active in discussing the issue, which, according to sources, indicates a likely refusal to approve the applications.

Why might Ether ETFs be rejected?

The Securities and Exchange Commission’s (SEC) approval of spot Bitcoin ETFs was based on the fact that existing market oversight mechanisms already applied to the Bitcoin futures ETF, which was approved in 2021, were deemed sufficient for spot ETFs as well.

Coinbase, citing the high correlation between Ether futures and the spot market as documented in SEC filings, argues that this logic applies to spot Ether products as well.

Despite expectations among some applicants that the SEC may deny approval of Ether ETFs due to general issues related to the nature and depth of the underlying Ether market data, there is a possibility that the agency may cite the limited time period for monitoring Ether futures.

Alternatively, the refusal could be motivated by the SEC’s desire to accumulate more data on ether.