SEC greenlights ETFs — but consumers will have to wait to buy them

Spot Ethereum exchange-traded funds are coming.

The Securities and Exchange Commission validated Thursday essential documents for the launch of Ethereum ETFs — all but guaranteeing their eventual approval.

“BOOM!! APPROVED! There it is. The SEC just approved spot Ethereum ETFs,” Bloomberg Intelligence ETF analyst James Seyffart posted. “What a turn of events. It’s really happening.”

Nine different ETFs — issued by BlackRock, Fidelity Investments, Grayscale Investments, VanEck, Invesco and Galaxy Digital, ARK Invest and 21 Shares, Hashdex, Franklin Templeton, and Bitwise — will likely launch.

These are almost the same firms that launched spot Bitcoin ETFs back in January, with only Valkyrie missing.

After months of radio silence, the SEC seemed poised to deny the applications as late as last week.

But following a major shift in attitude in Democratic Party leadership, the agency began frantically communicating with prospective ETF issuers on Monday, and even told concerned exchanges that it was leaning toward approving the products.

The reason for the rush? Thursday marks a crucial deadline on VanEck’s application. Blowing past that deadline would have amounted to rejecting the application.

But it’s not only VanEck’s problem. Just like with the spot Bitcoin ETFs, the SEC likely wants to approve all potential Ethereum ETFs at the same time to avoid giving an advantage to any one specific product. So every issuer needed to hurry to be ready by VanEck’s deadline.

What now?

Two essential forms need to be finalised for ETFs to be approved by the SEC: 19b-4 filings, and S-1 filings.

On Thursday, the SEC approved 19b-4 filings for the Ethereum ETFs, but because the agency’s change of heart was so unexpected, it likely still needs a few weeks — or even months — to review S-1 filings.

“The SEC spent nearly four months reviewing and iterating Bitcoin spot S-1s and five months reviewing Bitcoin futures S-1s,” Scott Johnsson, an associate at international law firm Davis Polk & Wardwell, wrote.

“If the division of Corporation Finance indeed was told about this potential approval [on Monday], then they’re likely just getting started,” he added.

It’s unlikely that the SEC would ratify one set of documents and not the other. So the 19b-4 approvals indicate the agency will most probably officially greenlight the products in the near future.

In other words, the Ethereum ETFs will likely launch sometime this summer.

Seismic shift in Washington

The SEC’s about-face this week came shortly after a group of prominent Democrats, including Senate majority leader Chuck Schumer of New York, voted with Republicans to repeal a controversial crypto accounting rule called SAB 121.

Since then, the Republican-led pro-crypto bill known as the FIT21 Act passed with a bipartisan vote of 279 in favour and 136 in opposition.

The Democratic Party’s sudden friendliness came as a shock to the industry — for a long time, most of its members seemed content to fall behind crypto critic Senator Elizabeth Warren of Massachusetts.

The trigger may have been the growing contrast between former President Donald Trump and President Joe Biden.

Trump, historically crypto agnostic, recently said he will support the industry if re-elected. Biden, meanwhile, threatened to veto a motion to repeal SAB 121 despite bipartisan support for the repeal.

With Trump leading Biden in the polls six months ahead of the presidential election and with crypto super PACs raising over $150 million to push forward pro-industry candidates, sometimes in swing states, Democrats’ aversion against crypto made less and less sense, according to Galaxy Digital CEO Mike Novogratz.

“It almost became a purity test — Republican good for crypto, Democrat bad for crypto. And the Democratic regime woke up and said ‘This is crazy,’” he said.

Bitwise Asset Management chief investment officer Matt Hougan, for his part, said Ethereum ETFs wouldn’t have gotten the nod without the help of Wall Street banks.

The success of spot Bitcoin ETFs “woke Wall Street up to the reality that there is a lot of money to be made in custodying crypto assets,” Hougan said. So they began lobbying in favour of repealing SAB 121 — and for more crypto assets to play with.

Tom Carreras is a markets correspondent for DL News. Got a tip about Ethereum ETFs? Reach out at tcarreras@dlnews.com