Companies such as ARK Invest, VanEck, and seven others expect the US Securities and Exchange Commission (SEC) to reject their applications for spot ether-based exchange-traded funds (ETFs) after disappointing recent meetings with commission members, insiders told Reuters.
A total of nine issuers have applied with the SEC to list spot ether ETFs, or instruments tracking ether’s spot price. VanEck was the first to apply, and the SEC must decide on its filing by May 23. The second to apply for a spot ether ETF was ARK, where the decision is due the following day at the latest.
SEC doesn’t seem interested in spot ether ETFs
Recent meetings between the SEC and issuers have been “one-sided.” According to participants, SEC members did not wish to discuss the proposed products in detail. Prior to the SEC’s landmark approval of 11 Bitcoin ETFs, discussions between the parties were intensive and detailed, which comes in stark contrast to the laggard spot ether ETF discussions.
The SEC, chaired by infamous crypto skeptic Gary Gensler, refused to approve spot Bitcoin ETFs for more than ten years, citing market manipulation concerns. After Grayscale won a lawsuit, the commission was forced to endorse them.
During the talks, the companies insisted the Bitcoin ETFs set a precedent for spot ether ETF products, as do futures-based ether ETFs, which the regulator approved in October 2023.
While the applicants tried to address regulatory concerns, the SEC didn’t ask them any questions or discuss specific issues related to spot ether ETFs, which suggests it will deny the filings.
A setback for the crypto market
Pro-crypto stakeholders had hoped the recently approved Bitcoin ETFs would push crypto mainstream, paving the way for spot ether ETFs. Apparently, the expected approval will be delayed. The companies want to keep talks going by filing additional disclosure documents with the SEC.
While the SEC has yet to comment on the spot ether ETF filings, the CEO of VanEck has said his company’s application would "probably be rejected." ARK CEO Cathie Wood did not comment, telling Reuters only that ether had the potential of being a leading asset class.
Insufficient data is available
According to insiders, the SEC has had only a few meetings on the proposed spot ether ETFs so far. There was one with Coinbase last month, the only meeting the regulator disclosed. Coinbase is the custodian of Grayscale’s Ethereum Trust, which Grayscale has applied to convert into an ETF.
The regulator found that the market surveillance mechanisms for Bitcoin futures ETFs were sufficient for spot bitcoin ETFs. It approved the futures ones back in 2021. Coinbase claims the same logic applies to spot ether ETFs, because the spot market and ether futures are highly correlated. Some applicants expect the SEC to reject spot ether ETFs due to the depth and nature of statistical data on the ether market.
Is another lawsuit needed?
What’s more, the SEC might claim it doesn’t have enough time to observe ether futures, Bitwise Asset Management CIO Matt Hougan told Reuters. Bitwise is among the candidates for a spot ether ETF. He believes they will want to see more data before making a decision. One of the insiders said the only way the market could see ether ETFs is if somebody’s application were rejected and they filed a lawsuit.
Hope for Ethereum’s ecosystem
Ether is currently in a deep bear market. It was trading at $3,150 on Friday morning, down by over 23% from its 2024 peak. According to OKX president Hong Fang, ether’s price reflects the imminent rejection of spot ether ETFs. Ether is up 39% this year, but that isn’t much compared to Bitcoin, which hit an all-time high and has added more than 51% to its value in 2024. Fang says people expect rejection, putting more downward pressure on prices.
Still, Ethereum’s ecosystem might not be doing that badly. It has a TVL of over $99.5 billion and its bridged TVL now exceeds $268 billion, which is an impressive amount. What’s more, the stablecoins running on the Ethereum Mainnet (among others) are worth over $83 billion, with Tether and USD Coin (USDC) accounting for the majority of that amount. Lido, AAVE, Maker, and other major DeFi platforms on Ethereum have over $5 billion in assets.
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