SEC seeks input on spot ether ETFs, whose future is hardly certain

SEC seeks input on spot ether ETFs, whose future is hardly certain
The SEC could put extra scrutiny on products that benefit from ether's proof-of-stake consensus mechanism, although most ETF applicants may not get the staking benefits in their funds.
APR 04, 2024

Three spot-price ether ETFs being prepared by Fidelity, Bitwise, and Grayscale are in new round of public comments after the exchanges they would be listed on filed with the SEC.

The regulator would have to approve listing-rule changes that would allow the products, which would follow the go-ahead it gave earlier this year for nearly a dozen spot Bitcoin ETFs from various providers. The exchanges filed the requests Tuesday with the Securities and Exchange Commission.

Numerous companies are pursuing spot ether ETFs, with at least eight applications filed. Three firms – Fidelity, Ark 21Shares, and Franklin Templeton – have prospectuses that mention staking, a benefit of owning ether that will likely also result in extra scrutiny from the SEC. Staking involves holding onto crypto assets to support the network and earning more crypto for doing so.

With the first spot-bitcoin ETFs now on the market, attention has turned to a similar treatment for ether, and the SEC could potentially approve products as soon as next month. However, the regulator could easily deny applications and prolong the approval process.

Given the early success of the bitcoin products, which have attracted tens of billions in sales since their recent launch, asset managers appear to see a related opportunity with ether.

“Ethereum, the second most popular cryptocurrency globally, has surpassed bitcoin in performance over the past year. Despite its popularity, mainstream investors often face limited access to Ethereum,” Maurice Wilson, investment advisor representative at Wilson Wealth, said in an email. “An ETF could bridge this gap, offering millions of investors access to Ethereum without the need for digital wallets or unfamiliar platforms. Diversification is a cornerstone of successful investing, making exposure to multiple forms of cryptocurrency a prudent strategy."

Surveys have indicated that financial advisors are generally interested in crypto exposure for clients, but how much they are using it so far and how much they will in the future are questions.

A recent report from the Digital Assets Council of Financial Professionals and Franklin Templeton found that 57 percent of the advisors they surveyed said they plan to recommend crypto to clients this year. ETFs make doing so less complicated and likely safer for many, and currently the management fees on most of the products are low as a result of the intense competition for assets.

“The main thing people should keep in mind is that there is the ability to ‘stake’ Ethereum and receive a staking yield, unlike bitcoin. Fidelity just updated their S-1 to include staking, and this is the type of ETF I think folks should consider if they’re looking at owning an $ETH ETF,” said Tyrone Ross, former CEO and co-founder of Onramp Invest, whose startup Turnqey Labs aims to provide crypto data for advisors.

But, Ross said in an email, “I don’t think there will be as much demand for an Ethereum ETF as the bitcoin ETF. I think this is especially true when looking at the wealth management space. I’ve personally had no advisers and/or firms ask me about it.”

Don't dismiss differences between bitcoin ETFs, Invesco strategist says

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