The SEC’s surprise blessing of Ethereum ETFs is the crypto makeover no one expected

ETFs aren’t exactly the most exciting asset class. These are the type of safe investments your father or financial planner told you to load up on; Why bet on individual stocks when you can own a slice of an entire sector, or better yet, the S&P 500? But for the topsy-turvy crypto world, ETFs have been the most jarring spark of life since 2021’s NFT craze.

To briefly recap, the crypto industry has been trying to trojan Bitcoin into traditional finance through ETFs since 2013, when the Winklevoss twins of Social Network fame first filed with the SEC to create an exchange-traded asset that would hold and track Bitcoin. it works. . These applications, like all others, were rejected until last year when crypto firm Grayscale won a landmark case in favor of the product. The SEC finally relented in January, causing crypto prices to soar. The initial class of 11 Bitcoin ETFs was among the most successful of all time, led by offerings from BlackRock and Fidelity. (Winklevii never acquired its ETF, but their company, Gemini, serves as the custodian of an ETF.)

Ethereum, the second-largest cryptocurrency that has always been trailing Bitcoin, seemed like the next natural candidate. Bitcoin’s success signaled a new era of crypto in which huge investment managers such as hedge funds could easily get a foothold in the industry. An ETF for Ethereum would reinforce crypto’s status as a bona fide asset class accepted, even covered, by traditional finance.

For months the dream seemed impossible. Unlike Bitcoin, which US regulators have long deemed to be a commodity, the twin agencies of the SEC and CFTC have argued over whether Ethereum should be regulated as a commodity or a security. The SEC, under controversial chairman Gary Gensler, has made a number of sorties in recent weeks that it will argue that Ethereum is a security and falls under its solemn jurisdiction. An ETF of an unregistered security would of course be impossible.

Every single one of the prospective issuers I spoke to was convinced that the Ethereum ETF would be rejected. In April, I interviewed Jan Van Eck, president of his eponymous firm, and he told me that the lack of SEC involvement meant they would halt any progress. The question was not when an approval would eventually come, but who would launch the inevitable lawsuit challenging the rejection, as Grayscale once did with the Bitcoin ETF, to force the SEC’s hand.

Some were still optimistic. Two weeks ago I spoke with Dave LaValle, global head of Grayscale ETFs, and he told me he hasn’t given up hope. Even when I pressed him on whether Grayscale would be willing to take on liability for the case once again, he said we would have to wait for a decision first. “I quit my day job of predicting what the SEC would do,” he told me.

The story continues

LaValle was eventually proven right. When Memecoin went to zero, the SEC appeared to change its mind just before the deadline for a decision; contacted both issuers and exchanges that would list the products on key forms. Some have suggested that the 180 comes due to a series of political victories for the crypto industry in Congress, including the House of Representatives passing a sweeping regulatory bill with bipartisan support. Whatever the reason, the SEC approved all eight applications on Thursday. While there are still some final hurdles, trading is expected to begin in the coming weeks.

The victory caps off a remarkable year for the cryptocurrency, which saw the industry soar from the Sam Bankman-Fried experiment to all-time highs, with its uncontroversial and unconventional launch.

boring investment tool. Don’t be surprised if the Dogecoin ETF comes next.

Leo Schwartz
Twitter: @leomschwartz
Email: [email protected]
Submit an agreement for the Term Sheet newsletter here.

Joe Abrams curated the deals section of today’s newsletter.

This story first appeared on Fortune.com