SEC green lights exchanges to list ether ETFs, still needs to approve money manager filings

Regulators have given the green light to the NYSE and Nasdaq to list eight exchange-traded funds holding Ethereum (ETH-USD), but have not yet given approval to money managers looking to issue the new products.

This move by the Securities and Exchange Commission is the first major step toward allowing ETFs to trade. The SEC will need to approve S-1 forms (applications for public offerings of new securities) from money managers before actual funds can begin trading.

The regulator gave no indication of when this would happen.

ETFs could make Ether a potential foundation in 401(k)s, IRAs, and retirement plans and drive more mainstream acceptance of the digital asset.

The SEC’s decision comes nearly four months after it allowed money managers to list ETFs that invest directly in Bitcoin (BTC-USD), the world’s largest cryptocurrency.

The group seeking approval for Ether ETFs includes some of Wall Street’s biggest names, from BlackRock (BLK), Fidelity and Franklin Templeton to better-known firms in the crypto world like Grayscale, Bitwise and Hashdex.

BlackRock’s headquarters in New York City. He is the world’s largest money manager. (Photo: Leonardo Munoz/VIEWpress) (VIEW press via Getty Images)

Ethereum price has risen this week as investor excitement over Ether ETF approvals grows. It fell 2% at 4 p.m. Eastern time on Thursday before rebounding in the hour before the SEC’s announcement. The digital asset is still outperforming Bitcoin, up over 50% to date.

The development is the latest example of the crypto industry’s success as it pushes for friendlier regulations in Washington and more freedom to launch new products.

On Wednesday, the US House of Representatives voted in favor of a bill that would reduce the influence of the SEC and establish the Commodity and Futures Trading Commission (CFTC) as crypto’s primary regulator.

This bill still needs to pass the Senate. The White House said in a statement Wednesday that it opposes the bill “in its current form” but hopes to create new rules for the industry.

“The Administration looks forward to continued collaboration with Congress on the development of legislation for digital assets that includes adequate protections for consumers and investors while creating the conditions for innovation, and more time for such collaboration will be needed,” the White House said.

Matt Hougan, Bitwise’s chief investment officer, told Yahoo Finance Live before the SEC announced the exchange approvals that he noticed “a real big shift in Washington around cryptocurrency.”

“Washington seems to have gotten the message that cryptocurrency is good for America and is popular with American voters,” he added.

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The irony of the approvals announced Thursday is that they come from an agency that has long served as an enemy of the industry through enforcement actions and lawsuits targeting some of the biggest players.

And for years, the SEC rejected applications to create spot ETFs tied directly to cryptocurrencies.

A significant development that changed the SEC’s calculations came when one of the ETF applicants, Grayscale, won a significant legal victory against the SEC last August.

Grayscale filed a lawsuit against the SEC in 2022 after it was not allowed to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin offering.

His main argument was that the agency had already approved exchange-traded products containing Bitcoin futures contracts and was therefore “acting arbitrarily and capriciously.”

A three-judge panel of the District of Columbia Circuit Court of Appeals in Washington sided with Grayscale, saying the firm had “substantial evidence” that its product was similar to bitcoin futures ETFs previously approved by the SEC.

SEC Chairman Gary Gensler. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)

This forced the SEC to re-evaluate Grayscale’s spot bitcoin ETF application, along with other applications filed by rival money managers.

When the SEC approved bitcoin products in January, SEC chairman Gary Gensler made clear that his agency “does not approve or disapprove of bitcoin” and called the decision “the most sustainable path forward” after the landmark court defeat.

Gensler touched on that turn again in a speech in Washington on Thursday morning, saying, “After probably two dozen orders from the commission, the D.C. community took a different view, and we took that into consideration and made the decision.”

Signs that approvals for Ether ETFs may be coming intensified this week as SEC staff began sending comments to exchanges planning to list the products, including Nasdaq and CBOE.

One of the explicit demands the agency asked of applicants was to revise their product so that the Ethereum held by the issuer cannot be staked to generate additional returns.

According to Coinmarketcap, Ether’s market cap is more than $450 billion and accounts for approximately 18% of the cryptocurrency’s total market cap. Cryptocurrency is the native currency of the Ethereum blockchain.

Unlike Bitcoin, blockchain uses a different verification and governance structure known as proof of work. This means that instead of cryptocurrency mining, ethereum transactions are verified by users who deposit their ether in exchange for a return in a process known as staking. Ether has not yet been labeled as a non-security asset by the SEC.

What this approval means for the crypto market is that “people will start betting on which crypto asset will be the next ETF,” according to Sean Farrell, head of crypto strategy at Fundstrat.

“I am sure that there will now be criteria that other countries can meet. [crypto] Farrell added that “provided the assets exist and those criteria are met, there is now precedent that an ETF can be launched.”

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas of finance.

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