The Securities and Exchange Commission (SEC) is seeking public comments on a trio of proposed spot ether exchange-traded funds (ETFs), as per recent regulatory filings.
The ETFs in question include the Fidelity Ethereum Fund, Grayscale Ethereum Trust, and Bitwise Ethereum Trust. On Tuesday, the SEC issued a notice specifically regarding the Bitwise proposal, stating, “The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons.” The public has been given a 21-day period to submit their comments on all three proposed ETFs.
However, the mood surrounding the potential for the SEC’s approval of these spot ether ETFs has notably shifted. Once buoyed by optimism, the sentiment has taken a downturn. Bloomberg ETF analyst Eric Balchunas revised his expectations for approval by May from an initial 70 percent to a now more conservative 30 percent.
Further dampening hopes, James Seyffart, another ETF analyst at Bloomberg, voiced his concerns following the SEC’s call for comments on Fidelity’s filing. Seyffart noted, “Nothing in the filings signal to me that anything has changed. Silence from the agency isn’t a good thing here,” indicating a perceived lack of progress towards approval.
The SEC has been intensifying its efforts to classify Ethereum, the world’s second-largest cryptocurrency, as a security. The regulators issued a series of subpoenas to U.S. companies, focusing particularly on their interactions with the Ethereum Foundation, a nonprofit organization responsible for overseeing the blockchain’s governance and development. The move raised concerns within the crypto industry, particularly following hopes that the SEC’s recent approval of Bitcoin ETFs would pave the way for Ethereum ETFs by major financial players like BlackRock.
The investigation into the Ethereum Foundation, especially following Ethereum’s transition to a “proof-of-stake” governance model in September 2022, signals the SEC’s ongoing scrutiny of the crypto space. This shift away from the “proof-of-work” model, akin to Bitcoin’s, to a more energy-efficient system involving a network of validators, has provided the SEC with new grounds to explore Ethereum’s classification as a security.
The broader regulatory landscape for the crypto industry has been caught between the SEC’s oversight ambitions and the commodities framework applied by the Commodities and Futures Trading Commission (CFTC) to assets like Bitcoin.
Ethereum’s regulatory status has been a matter of speculation and discussion for years. In 2018, SEC officials suggested that Ethereum might not constitute a security, a stance that appeared to shift under Gensler’s leadership, especially after Ethereum’s adoption of the proof-of-stake model. Gensler’s comments in 2023 implied that proof-of-stake-based cryptocurrencies might fit the definition of investment contracts, hinting at a possible security classification, though without directly naming Ethereum.
SEC Chair Gary Gensler has made it clear that the agency’s decision on bitcoin ETFs is specific to bitcoin and should not be interpreted as a broader acceptance of other cryptocurrency products.
