The cryptocurrency industry has crossed another milestone, as the US Securities and Exchange Commission (SEC) approved the listing of Ether exchange-traded funds (ETFs) on American exchanges. However, the agency has yet to approve trading.
The Intricacies of Two Forms
The SEC’s approval yesterday (Thursday) came for the 19b-4 forms tied to the Ether ETFs. Securities exchanges make these so-called 19b-4 form submissions for introducing new products or amending existing rules. For Ether ETF, the 19b-4 forms of Nasdaq, CBOE, and NYSE were approved.
enter the ether 🫴 pic.twitter.com/YXgKQFP5Nr
— VanEck (@vaneck_us) May 23, 2024
However, for trading Ether ETFs, the SEC must approve S-1 forms filed by prospective issuers of the instrument. The S-1 registration forms contain detailed information about new securities to be offered to the public. For ETFs, these forms include the fund’s structure, management, and investment strategy, along with details on the methods of tracking the performance of the underlying assets. The SEC assesses the risk and transparency of the funds with these S-1 forms.
For the Ether ETF to be available to the public for trading, the SEC must approve both 19b-4 and S-1 forms. As of now, it has only approved the 19b-4 forms, and there is no indication of the approval of the S-1 forms.
The prospective Ethereum ETF issuers who submitted the S-1 forms include BlackRock, Fidelity, Grayscale, VanEck, Franklin Templeton, Ark/21Shares, and Invesco/Galaxy. In recent amendments to their submissions, most of these companies removed the provisions of Ethereum staking.
The SEC’s statutory period for the approval of S-1 can be extended up to 240 days, and there is no guarantee that a green light to the 19b-4 forms will also lead to the approval of S-1 forms.
While approving the Bitcoin ETFs, the SEC approved both 19b-4 and the S-1 forms at the same time, enabling their trading the very next day of approval.
Has the Market Reacted?
Although anticipation for Ether ETFs was lower than that for Bitcoin ETFs, the buzz around the instrument suddenly burst in the last few days after a senior Bloomberg analyst raised the odds of approval of a Bitcoin ETF from 25 percent to 75 percent.
Subsequently, reports also came that the SEC approved the securities exchanges, asking them to amend their 19b-4 forms, an indication of the incoming approval.
With all these events, the dollar value of Ether rallied aggressively in the markets. The cryptocurrency gained about 30 percent in the last 7 days. However, the approval of the 19b-4 forms failed to create significant volatility.
“It’s all about liquidity and flow,” highlighted IG-owned tastycrypto's Head, Ryan Grace. “ETFs equal institutional flow, and new money into the asset class. There’s debate over the initial demand for ETH, but over time, the pipes exist and this matters to the growth of the asset.”
Ether ETF Approved: Why Investing in Ether is Much More Sensible than Bitcoin in 5 Points
— tobbykitty.eth 🦇🔊 (@TobbyKitty) May 24, 2024
A thread 🧵
1. Ether is Much Scarcer and Even Deflationary Compared to Bitcoin 📈
Unlike Bitcoin, transaction fees on the Ethereum blockchain do not go directly to miners (validators,… pic.twitter.com/1xDgWp8KD0
He further pointed out that even if Ether ETFs receive a trading clearance, the results might not be similar to the impact of Bitcoin ETFs on price.
“We could see a price squeeze given illiquid ETH supply,” Grace added. “Around 30% of supply is staked, and while it could be unstaked, ETH is used in DeFi etc., and the supply is not super liquid vs potential demand flows.”
“Essentially, ETH ETF gives institutions a way to 'diversify' their crypto allocation. I’m not expecting there to be as big of an inflow as we saw in the BTC ETFs initially, but maybe we see assets under management approach 50% of BTC ETFs within 6 months.”
