The U.S. Securities and Exchange Commission (SEC) has approved the listing of eight exchange-traded funds (ETFs) that hold ether (ETH-USD), the native cryptocurrency of the Ethereum blockchain. This move marks a pivotal step towards integrating digital assets into mainstream financial markets. While the SEC has permitted the NYSE and Nasdaq to list these ETFs, the actual funds will only begin trading once the SEC approves the S-1 forms submitted by money managers.
This development could bring ether into the portfolios of 401(k)s, IRAs, and pension plans, enhancing its acceptance and usage. The SEC's decision follows its earlier approval of ETFs directly investing in bitcoin, signaling a broader acceptance of cryptocurrencies in traditional finance.
The cohort seeking approval for ether ETFs includes prominent financial firms like BlackRock, Fidelity, and Franklin Templeton, alongside established crypto entities such as Grayscale, Bitwise, and Hashdex. The anticipation around these approvals has already impacted ether's market performance, with the cryptocurrency experiencing a rally amid growing investor excitement.
This regulatory endorsement is a testament to the crypto industry's growing influence in Washington. On Wednesday, the U.S. House of Representatives passed a bill aimed at reducing the SEC's regulatory grip on crypto, proposing the Commodity Futures Trading Commission (CFTC) as the primary regulator. While the bill still needs to pass the Senate and faces opposition from the White House, it reflects a shift towards more accommodating regulations for digital assets.
Matt Hougan, chief investment officer of Bitwise, noted the changing sentiment in Washington, stating, "It looks like Washington has gotten the message that crypto is good for America and that it's popular with American voters."
The irony of the SEC's approvals lies in the agency's historical resistance to crypto products, often characterized by enforcement actions and lawsuits. The pivotal moment came last August when Grayscale won a legal battle against the SEC, which had previously denied its application to convert its Bitcoin Trust into a spot bitcoin ETF. The court ruled that the SEC had acted "arbitrarily and capriciously," prompting the agency to reconsider its stance.
SEC Chair Gary Gensler, in a speech on Thursday, acknowledged this shift, noting that the agency had to adapt following the court's decision. "After probably two dozen orders from the Commission, D.C. circuit took a different view and we took that into consideration and pivoted," Gensler said.
The approval process for ether ETFs accelerated this week when the SEC began sending comments to exchanges planning to list these products. One significant requirement from the SEC was to ensure that ether held by the issuers could not be staked to earn additional yield.
Ether, with a market capitalization exceeding $450 billion, accounts for approximately 18% of the total crypto market value. Unlike bitcoin, Ethereum operates on a proof-of-stake system, where transactions are verified by users who deposit ether in return for yields. Despite its prominence, ether has yet to be officially labeled as a non-security by the SEC.
Sean Farrell, head of crypto strategy at Fundstrat, suggested that this approval could lead to speculation about which crypto asset might be the next to receive ETF approval. "I am certain that there will now be criteria that can be met by other [crypto] assets and should that criteria be met, there's now precedent that there can be an ETF brought to market," Farrell remarked.
The approval of these ether ETFs follows the SEC's January decision to greenlight spot bitcoin ETFs, which have since attracted nearly $13 billion in net inflows. Cody Carbone, chief policy officer at the Digital Chamber of Commerce, compared the significance of these approvals to an initial public offering (IPO), stating, "This is ETH's IPO. That is a massive stamp of approval."
