SEC Approval Paves the Way for US Spot-Ether ETFs: A Significant Milestone for Crypto

In a landmark move for the cryptocurrency market, the Securities and Exchange Commission (SEC) has given the green light to proposals by leading exchanges such as Cboe Global Markets Inc., Nasdaq, and the New York Stock Exchange to list products tied to Ethereum, the second-largest digital asset. This decision, which comes after weeks of speculation, opens the door for US spot-Ether exchange-traded funds (ETFs) and marks a significant step forward for the crypto industry.

Thursday's announcement removes a significant barrier for US spot-Ether ETF trading, though issuers still await a separate approval from the SEC, with no set deadline for the decision. The anticipation of approval has already had a positive impact on Ether's price, which rose 1.5% to $3,810, driven by a 24% surge over the week.

According to Rich Rosenblum, president of liquidity provider GSR Markets Ltd., these developments represent a major milestone for the crypto market. He described the sudden shift towards approval as “the most incredible thematic whipsaw” he has witnessed in his 12 years of trading in this space.

Various firms including VanEck, ARK Investment Management, BlackRock Inc., and Fidelity Investments are now competing for the first-mover advantage in launching spot-Ether ETFs. Their interest has been spurred by the success of Bitcoin ETFs, which have amassed $58 billion in assets since receiving SEC approval at the beginning of 2024.

The SEC's decision mirrors its previous order in January approving exchanges to list Bitcoin ETFs. It includes a detailed discussion on the correlations between the spot market of Ether and its futures, particularly those hosted by CME Group Inc. in Chicago. Close monitoring of these correlations is crucial for regulators to detect any trading anomalies promptly.

Coinbase Global Inc. presented a study demonstrating significant correlations between spot and futures markets for Ether, providing empirical evidence of price alignment. The SEC's replication of this and other studies supports the notion that prices generally move in close alignment between the spot and CME Ether futures markets.

Beyond the realm of ETFs, these developments hold wider policy implications. SEC Chair Gary Gensler's stance on whether Ether constitutes security has been ambiguous, raising concerns among crypto enthusiasts about potential regulatory oversight. However, the Commodity Futures Trading Commission (CFTC) has indicated that it does not view Ether as a security, having allowed trading in Ether futures for years.

Lee Reiners, policy director of the Duke Financial Economics Center, highlights that exchange bids to list Ether ETFs were based on the premise that Ether is a commodity rather than a security. The SEC's decision to greenlight these proposals reinforces the view that Ether is not classified as a security.

Despite the optimism surrounding Ether ETFs, some analysts urge caution. Lara Crigger of data provider VettaFi believes that while Ether has more use cases than Bitcoin, its market is smaller with lower awareness among investors. Thus, Ether ETFs may not attract the same scale of inflow as Bitcoin products.

Conclusion

The SEC's approval of proposals for US spot-Ether ETFs marks a significant milestone for the cryptocurrency market, paving the way for increased institutional and retail investment in Ethereum. While challenges and uncertainties remain, this development signals growing acceptance and integration of cryptocurrencies into traditional financial systems.