Spot Ether ETF: a Crypto Game Changer?

Spot bitcoin ETFs have transformed cryptocurrency investing this year. The SEC’s recent first step towards approving spot ether ETFs could drive a broadening of the same trend. According to VanEck, the decision brings much-needed clarity to the regulatory status of ether.

• SEC gave first approval for spot ether ETF approval in late May.
• Cathie Wood’s ARK Invest steps back from its ether ETF application.
• Ether price has more than doubled over the past 12 months.

The US Securities and Exchange Commission (SEC) green lit spot ether ETFs to be traded on US exchanges on 23 May, in the first step towards the launch of the instruments.

The regulatory body gave approval to three exchanges to list spot ether ETFs: the NYSE Arca, Nasdaq and CBOE BZX. The next step is approval for the ETFs themselves, a process which, according to Forbes, could take several months.

The eight products that could receive approval are: the Grayscale Ethereum Trust, Bitwise Ethereum ETF, iShares Ethereum Trust, VanEck Ethereum Trust, 21Shares Core Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund and the Franklin Ethereum ETF.

VanEck’s application was, according to CNBC, the first to be filed among the eight.

The asset management firm’s CEO Jan van Eck called the decision “one of the most amazing things that I’ve seen in my career with respect to securities regulation” in an interview with CNBC’s ETF Edge on 1 June.

ARK Invest, however, appears to have backed out of an application it had previously been part of.

Its partner, 21Shares, updated its S-1 form last Friday to omit any mention of ARK in the fund’s title, and an ARK spokesperson later stated that “ARK believes in its transformative potential and the long-term value of the Ethereum blockchain, but, at this time, ARK will not be moving forward with an Ethereum ETF”, according to DailyCoin.

It’s unclear why ARK has pulled out.

However, Founder, CEO and CIO Cathie Wood recently told the Consensus 2024 crypto convention that she believed the SEC’s approval was sudden and unexpected, and could have political motivations, with a US presidential election coming up in November.

Crypto’s Coming of Age

The prospect of ether ETFs follows on from the launch of bitcoin equivalents in January this year. The 11 spot bitcoin ETFs that were launched on 10 January drove the most successful launch in ETF history, securing net inflows of over $10bn during their first two months of trading.

Increased institutional investment entering the crypto ecosystem via these ETFs could help to legitimise an industry that has developed a reputation for underhand dealing.

“It comes down to the rampant non-compliance with US law,” said SEC Chairman Gary Gensler, explaining his prior reluctance to approve spot crypto ETFs in an interview with Eric Pan, President and CEO of The Investment Company Institute, at the end of May. “It comes down to the frauds and scams. This is a field where some of the leading lights of the field are either now in jail, awaiting jail, awaiting extradition,” he added, according to the Financial Times.

However, the approval of spot bitcoin ETFs, their instant success, and the path now being cleared for ether ETFs all point towards a sea change in the SEC’s attitude.

Regulatory Clarity

One of the long-term blocks to mainstream adoption of cryptocurrencies has been the question of how to regulate them.

Michael Venuto, Co-founder and Chief Investment Officer of Tide Financial Group and Portfolio Manager of the Amplify Transformational Data Sharing ETF, last year told OPTO Sessions that high-profile crypto scams, such as the collapse of FTX, came about in part because of a lack of clear regulatory policy.

This included the question of cryptocurrencies’ regulatory status. There are arguments to suggest that ether, in particular, could be looked at by investors as either a security, a commodity or a currency.

However, in the view of Matthew Sigel, Head of Digital Assets Research at VanEck, the SEC is making it clear that ether will likely be treated as a commodity.

“Ether’s status as a commodity has now been recognized in a variety of circumstances, including the Commodity Futures Trading Commission’s regulation of ether futures, public statements by Commission officials, rulings by federal courts, and now, hopefully, this ETF,” Sigel wrote in a blog following the SEC’s ether ETF approval.

Sigel told OPTO the decision is “a huge regulatory 180” and that he views the decision as “tremendously bullish for the future of innovation on open-source blockchains, particularly the Ethereum ecosystem”.

How Could Spot ETFs Impact Ether Price?

The news of the first approval prompted a brief spike in the ether price, which hit a high of $3,943.55 on 23 May. However, the price then rebounded to close the day at $3,776.93, just 1.1% up on the previous day’s close.

Despite some losses in the interim, spot ether closed 4 June up 2% since the SEC decision, up 67% year-to-date and up 110.4% over the past 12 months.

With bitcoin having gained 51.3% since the approval of its spot ETFs on 11 January, some observers such as SynFutures CEO Rachel Lin believe that spot ether ETF approval could drive the ether price as high as $22,500 during this cycle.

Sigel told OPTO that, according to VanEck’s quantitative analysis, “investors can add positive risk-adjusted returns by adding an ether allocation to existing bitcoin holdings. For investors willing to stomach a 20% volatility portfolio, holding bitcoin and ether up to a 15–20% combined weight will continue to increase the risk/reward, if past is prologue.”