Battle for Ethereum ETFs turns messy in the US — what’s next?

Michael Saylor thinks they won’t start at all, and even some fund issuers think it’s unlikely this year. Meanwhile, other countries are gaining first mover advantage.

The battle to launch exchange-traded funds based on Ethereum’s spot price in the US is heating up, and so far the journey has been similar to Bitcoin’s long and complicated road to approval.

The U.S. Securities and Exchange Commission is once again working tirelessly to provide a definitive response to the applications already filed. The green light is important because it allows investors to gain exposure to ETH without owning the underlying asset.

Grayscale and Franklin Templeton were expected to hear back from the SEC in April, but regulators pushed their deadline to June.

Fidelity and BlackRock have also put similar practices into the long grass. VanEck and ARK Invest are expected to receive a response later this month, but hopes of approval are quickly diminishing.

From where? Because there are signs that the regulator believes Ether is a security and not a commodity like Bitcoin.

A growing dispute

Speaking before the House Financial Services Committee in June 2023, SEC chairman Gary Gensler refused to say whether he believed ETH was a security.

The lack of a clear answer had spooked the crypto industry; especially given that this contradicts previous guidance from his predecessor, Jay Clayton.

Even before that, during the Merger in September 2022, Gensler hinted that the staking process could fall under securities rules.

Ether’s status is important because it determines which entity maintains regulatory control in the US, and if it is a security, this could cause major problems for other altcoins.

Consensus recently sued the SEC, coming to Ethereum’s defense, arguing that the commission’s “illegal power grab threatens to undermine America’s position as the leader of the next-generation internet.”

Saylor’s prediction

Michael Saylor, executive chairman of Bitcoin backer MicroStrategy, who is leading efforts to add hundreds of thousands of BTC to the company’s balance sheet, does not believe ETFs based on ETH’s spot price will see the light of day. Speaking at the annual Bitcoin for Companies event, he warned:

“Sometime this summer, it will be very clear to everyone that Ethereum is considered a cryptoasset security and not a commodity. From now on, you will see that Ethereum, BNB, Solana, Ripple, Cardano (everything below) are just unregistered crypto asset securities. None will be covered by a spot ETF, none will be accepted by Wall Street, none will be accepted as crypto assets by mainstream institutional investors. [Bitcoin] It is the only universal, consensus-accepted, institutional-grade cryptoasset in the world. There won’t be another one.”

Michael Saylor

Of course, you could argue that it was inevitable that Saylor would say this; especially considering he believes BTC is the only cryptocurrency that is technically and ethically sound. Speaking at the Blockchain Economy Istanbul Summit in July 2022, he warned that Ether’s constant upgrades were “unveiling new attack surfaces” that undermine security and reliability.

What happens next?

The biggest challenge now appears to be the lack of dialogue between the SEC and firms hoping to launch an Ether ETF. As Barron’s reported last month, applicants are not given “the critical feedback needed to finalize their products.” In contrast, BTC ETF issuers were in a “strong back-and-forth” movement before their funds began trading.

Jan van Eck, whose eponymous investment firm is awaiting a decision from the SEC, told CNBC in April that he publicly believed the application would “probably be rejected.” Jean-Marie Mognetti from CoinShares predicted that there would be no approval in 2024.

While the US continues to be paralyzed by regulatory uncertainty, where a lack of clarity regarding Ether’s status has frustrated crypto firms, other jurisdictions are gaining first-mover advantage.

Although first-day trading volumes were fairly sluggish, it’s still a big deal that Hong Kong is launching an ETH ETF, amid speculation that this could one day open the door to investors from China.

As S&P Global recently noted, funds based on Ether’s spot price have already been approved in Canada, Switzerland, Sweden and Germany; Some also offer additional returns by offering staking returns.

With ETFs in other regions holding billions of dollars in assets, the U.S. risks falling further behind.