The Securities and Exchange Commission on Thursday paved the way for
trading
in exchange-traded funds that invest directly in the cryptocurrency
Ether
, putting the digital-asset industry on the cusp of a significant milestone.
In a first-of-its-kind blessing, the
SEC
signed off on a proposal by venues run by Cboe Global Markets Inc., Nasdaq and the New York Stock Exchange to list products tied to the world’s second-biggest cryptocurrency.
The move, which had seemed unlikely as recently as last week, removes a key hurdle for spot Ether ETF trading in the US. Issuers now need a separate sign-off from the regulator; no deadline has been set for that decision.
Investment
companies, including VanEck, ARK Investment Management, BlackRock Inc., and Fidelity Investments, are all vying for crucial first-mover advantage in the race to launch a spot Ether ETF. Their interest has been piqued by billions of dollars gushing into new Bitcoin ETFs since January when the SEC signed off on trading in those products.
Shares of Coinbase gained as much as 4.1% in after-hours trading Thursday, while Robinhood shares rose nearly 3%. The crypto market response to the news was relatively muted – Ether traded around $3819.80 in the immediate aftermath of the release
Beyond ETFs, the SEC’s announcement on Thursday is laced with US financial policy implications.
SEC Chair Gary Gensler has been ambiguous on his views over whether Ether is a security, stoking concerns that the agency was hardening its stance. Crypto enthusiasts say they are worried about him trying to subject Ether — and potentially projects based on the Ethereum blockchain — to the agency’s tough, expensive and onerous investor-protection rules.
Meanwhile, the Commodity Futures Trading Commission, the US’s other main market
regulator
with jurisdiction over derivatives, has signaled that it doesn’t consider Ether to be a security. The CFTC has for years allowed trading in Ether futures by CME Group Inc.
Significant victory
As recently as last week, companies were banking the SEC would reject the Cboe plan — and potentially others — by Thursday’s deadline. Additional SEC approval is still needed for the issuers, but the signoff is a significant victory for the industry.
Backers hope a listing will bring a new flood of money to the asset class by appealing to retail and institutional investors, who are interested in crypto but more comfortable investing in ETFs than tokens.
Overall, investors, many who retreated after FTX exchange’s collapse, have already been piling back into crypto. Ether, the native token of the Ethereum blockchain, is up more than 60% this year alone thanks to the frenzy.
Crypto crackdown
Some of that rally is due to optimism that the US crackdown on the industry may be waning. The Republican-led House on Wednesday advanced sweeping cryptocurrency legislation despite opposition from the White House and Gensler. Although the Senate isn’t expected to approve the measure, it garnered some Democratic support in the House.
On the jurisdictional question, Lee Reiners, policy director of the Duke Financial Economics Center at Duke University, said that exchange bids to list the products were based on Ether being a commodity and not a security. An SEC decision to green light the plan bolsters the view that the SEC still considers Ether not to be a security, he said.
Investment companies seeking to list the products have already been making concessions to win SEC approval.
Fidelity Investments said it will keep Ether it buys as part of the ETF out of programs that pay rewards for blockchain maintenance, known as staking. The latter has been a hot-button issue for Ether because it raises questions about whether the token should be treated as a security. Last year, the SEC in a lawsuit accused Coinbase Global Inc. of breaking its rules by offering staking services.
