Fidelity Drops Staking Plans From Ethereum ETF Filing, Boosting Approval Odds Amidst SEC’s Sudden U-Turn

$4.9 trillion asset manager Fidelity has filed an amended S-1 registration statement with the United States Securities and Exchange Commission (SEC) for its spot Ether exchange-traded fund (ETF). 

Fidelity has removed staking plans from their updated ether proposal ahead of approaching deadlines for such ETH-based products. This adjustment is expected to increase the chances of approval following a recent U-turn from the SEC.

Fidelity Adjusts Ether ETF Filing

In the updated S-1 application submitted on Tuesday, the clause stating Fidelity would stake a portion of the fund’s assets through third-party infrastructure providers was notably removed. The asset management giant clearly indicated in the new registration statement that it would “not stake the ether” stored with the custodian.

Staking refers to the process through which users lock Ethereum tokens on the network for a stipulated period of time in exchange for rewards. Staking became a key component of Ethereum’s consensus model with the blockchain’s transition to a proof-of-stake security system in September 2022. It’s mainly deemed passive income among cryptocurrency traders.

The previous version of Fidelity’s filing also indicated that staking rewards would be treated as taxable income, creating a taxable event for investors without corresponding distributions from the trust.

The removal of the staking may be attributed to the SEC’s concerns about staking crypto assets. In June 2023, the SEC sued Coinbase for offering users access to staking via its platform, claiming it was breaking federal securities laws.

Optimism As Spot ETH ETF Deadline Looms

The amended filing follows reports that the SEC has softened its stance on spot Ethereum ETFs — likely due to political pressure — with reports that the regulator has asked ETF issuers to update their 19b-4 filings. By dropping staking plans, Fidelity might be mitigating potential regulatory risks, thus boosting the likelihood of the ETF’s greenlighting. Bloomberg analysts recently suddenly raised the probability of approval to 75% from 25%.

The SEC has been pushing back decisions on spot ether ETF proposals. The Commission postponed making a decision on the Invesco Galaxy spot Ethereum ETF proposal and also deferred decisions for other proposals from Grayscale, Fidelity, Franklin Templeton, VanEck and BlackRock.

The regulator must, however, decide on VanEck’s spot Ethereum application by May 23, followed by Ark and 21Shares’s application on May 24.

Implications For The Ether Price

Fidelity’s updated filing comes after a massive price appreciation for Ether, which rose over 22% during the past 24 hours to trade at a two-month high of $3,818, according to CoinGecko data.

Expectations are currently high as the deadline for the SEC’s decision on spot Ether-based ETFs draws closer. The approval and listing of spot Ethereum ETFs could be a significant catalyst for the price of Ether, pushing ETH to new all-time highs.

However, an SEC rejection would trigger significant price correction.