Green Light for Ethereum ETFs: SEC Approves Eight Applications

In a significant shift, the U.S. Securities and Exchange Commission (SEC) approved spot Ethereum ETFs on Thursday, following a change in political sentiments that influenced the agency’s stance on these financial instruments.

SEC Approval of Spot Ethereum ETFs

This approval is expected to pave the way for further victories for digital asset investors and developers, according to VanEck’s Head of Digital Assets Research, Matthew Sigel.

He expressed optimism that the improved political landscape will lead to new laws and court rulings favoring investment in bitcoin, Ethereum, and other blockchain software. VanEck, along with BlackRock, Grayscale, and Fidelity, is among the firms that applied for the right to issue spot Ethereum ETFs.

Bitwise Invest highlighted the significance of the SEC’s decision, noting that it puts the spotlight on Ethereum, the second-largest cryptocurrency asset. Bitwise also had a spot Ethereum ETF application approved.

Industry Perspectives and Responses

Prior to this week, there was a prevalent belief that spot Ethereum ETFs would not gain SEC approval despite the recent success of spot bitcoin ETFs, which launched in January and have since attracted billions of dollars in investments. Traditional financial institutions like BlackRock and Fidelity have issued these spot bitcoin ETFs, drawing hundreds of institutional investors.

Coinbase’s Chief Legal Officer, Paul Grewal, stated that the SEC’s approval confirmed the longstanding belief within the crypto community that Ethereum is a commodity. He remarked on the unprecedented nature of the week’s events, emphasizing that Ethereum has consistently been seen as a commodity.

Sigel from VanEck concurred with Grewal, noting that evidence shows Ethereum is a decentralized commodity rather than a security. He cited the Commodity Futures Trading Commission’s (CFTC) regulation of ETH futures, public statements by commission officials, and federal court rulings as instances recognizing Ethereum’s status as a commodity.

Consensys, an Ethereum decentralized application producer, echoed these sentiments but criticized the SEC’s inconsistent approach to digital assets. They acknowledged the approval of ETH spot ETFs as a positive step but described the SEC’s decision-making process as ad hoc and unfair, highlighting the regulatory challenges faced by the digital asset market. 

Broader Impacts and Market Reactions

Greg Moritz, Co-Founder and COO of Alt Tab Capitals, stated that the approvals would broaden investor exposure to crypto-related investments. He pointed out the high demand for digital assets and noted that access had been largely restricted to the technically savvy or wealthy. The recent regulatory decision, according to Moritz, indicates progress and the creation of products by major financial institutions to meet this demand.

The announcement of the SEC’s approval also drew reactions from professionals advocating for financial innovation. Julie Stitzel, Vice President of Policy at DCG, emphasized that the engagement from policymakers on spot Ethereum ETF approval demonstrates bipartisan support for financial innovation, reflecting lawmakers’ responsiveness to American concerns.

Additionally, Wednesday’s House vote, which passed the Financial Innovation and Technology for the 21st Century Act (FIT21) by 279 to 136, was seen as a political victory by many crypto advocates. The act aims to empower the CFTC with more authority and funding to oversee crypto assets classified as digital commodities.

Despite the positive news, several bitcoin miners and bitcoin-adjacent stocks experienced a downturn on Thursday, coinciding with broader equity market declines. Shares in Hut 8 led the fall, dropping 10%, while Riot Platforms and Marathon Digital saw declines of 7.6% and 5.5%, respectively. MicroStrategy, often viewed as a proxy for bitcoin due to its significant holdings, fell by 6.2%.

Procedural Steps and Future Prospects

For spot Ethereum ETFs to begin trading, the SEC needed to approve the 19b-4 form, followed by the effectiveness of S-1 registration statements. This process is expected to involve multiple rounds of review between the SEC and prospective issuers, potentially taking weeks.

Moreover, the U.S. House of Representatives passed a landmark crypto market structure bill late Wednesday, marking the first such legislation to be voted on in the House. The Financial Innovation and Technology for the 21st Century Act (FIT21) aims to regulate the crypto industry comprehensively, with the House voting 279 to 136 in favor of the Republican-led bill.

According to Palmer, the overall shift in regulatory tone should make institutional investors more comfortable with buying crypto and related instruments, including stocks with bitcoin exposure. As of publication time, Ether had risen by 1.2% over the past 24 hours to $3,814, while Bitcoin had decreased by 2.9% to $67,506.