In the coming weeks, the US Securities and Exchange Commission (SEC) is expected to decide against the launch of several proposed exchange-traded funds (ETFs) tied to the spot price of ether, according to industry people.
VanEck, ARK Investment Management and seven other issuers have filed applications with the SEC to list such ETFs, with decisions on the VanEck and ARK filings due May 23 and May 24, respectively.
The expected rejection comes after recent meetings between ETF issuers and the SEC, which participants described as one-sided, with SEC staff not involved in detailed discussions of Recommended products.
This contrasts with the dialogue before the SEC approved a spot bitcoin ETF in January, following a successful court challenge by Grayscale Investments after years of rejection over market manipulation concerns.
ETF issuers have tried to argue that the precedent set by the approval of both a bitcoin spot ETF and an ether futures-based ETF in October should extend to spot ether products. They sought to address potential regulatory concerns, but the lack of specific response from the SEC led to expectations of a negative outcome.
The SEC's hesitation in approving an ether ETF appears to be affecting the cryptocurrency's market performance. Ether has increased 39% in value this year but has failed to keep up with bitcoin's 51% gain.
The SEC's approval of spot bitcoin ETFs is based on the adequacy of market surveillance mechanisms for bitcoin futures ETFs. Coinbase, which oversees Grayscale's Ethereum Trust, has argued to the SEC that the same reasoning should apply to spot ether ETFs due to the high correlation between ether futures and the spot market.
If the SEC denies ether ETF applications, it is expected to be due to broad issues such as the nature and depth of statistical data on the underlying ether market, rather than specific concerns about the ETF itself.
A potential rejection of the ether ETF could lead to further legal challenges, as was the case with the bitcoin spot ETF. Industry sources say an ether ETF could eventually become a reality, but perhaps only after a court mandate.
