The joint application for a spot Ethereum exchange-traded fund (ETF) by Ark Invest and 21Shares has undergone significant amendments, as highlighted in a recent S-1 filing. The changes primarily focus on the creation and redemption process, limiting it to cash-based transactions rather than in-kind exchanges involving ETH. This article delves into the implications of this alteration and examines the potential impact it may have on the ETF approval process.
Cash Creations and Redemptions: A Critical Factor
Historically, cash creations and redemptions have played a pivotal role in the approval of spot Bitcoin ETFs. It is worth noting that these cash-based methods have seemingly emerged as a result of the challenges faced by financial institutions in dealing with cryptocurrencies under current U.S. regulations. However, it remains unclear why the U.S. Securities and Exchange Commission (SEC) has insisted on this approach.
The amended filing for the Ethereum ETF suggests that authorized participants will only have access to cash creations and redemptions. This exclusion of in-kind transactions involving ETH could potentially make the approval process smoother, aligning the Ethereum ETF’s requirements with those of approved Bitcoin ETFs. It is crucial to note that the SEC’s stance on cash-based methods sets expectations for the approval of spot Ethereum ETFs.
In addition to the altered creation and redemption process, the amended filing reveals the ETF issuers’ intention to engage in Ethereum staking. This move demonstrates the growing interest in staking as a means of generating additional income. However, it also carries inherent risks. The filing states that while staking may yield rewards, there is also a risk of loss.
Notably, the language surrounding Ethereum staking in the filing is bracketed and uncertain. This ambiguity suggests that the SEC may ultimately disallow staking within the ETF structure. Bloomberg ETF analyst James Seyffart has expressed his skepticism regarding the approval of staking, and it remains to be seen how the SEC will view this aspect of the proposal.
One positive development arising from the amendment is the extension of deadlines for several other Ethereum ETF proposals. BlackRock, Fidelity, Grayscale, and Invesco Galaxy, among others, have all been granted additional time by the SEC to further refine their ETF applications. While this signals progress in the overall approval process, the final decision on a spot Ethereum ETF is expected by May 23.
Market expectations surrounding the approval of a spot Ethereum ETF are mixed. Polymarket’s prediction market suggests a 43% chance of approval in May, while JP Morgan estimates a 60% likelihood. However, TD Cowen does not anticipate an approval until 2024. Standard Chartered Bank, on the other hand, remains optimistic and expects an approval next month.
Given the recent amendments and ongoing developments surrounding Ethereum ETFs, it is unclear how investor sentiment is being influenced. However, at the time of writing, Ethereum has outperformed the 24-hour market average, demonstrating a gain of 1.9%. The cryptocurrency market as a whole has also experienced a positive upswing, with a 1.5% increase, while Bitcoin has seen a 1.3% rise.
In terms of market cap, Ethereum currently holds the second position, with a valuation of $292.25 billion. The 24-hour trading volume for ETH stands at $9.42 billion, reflecting the ongoing interest and activity surrounding the cryptocurrency. It is essential to monitor these market dynamics as the regulatory landscape evolves.
The recent amendments made by Ark Invest and 21Shares to their joint Ethereum ETF application mark a significant development in the quest for regulatory approval. The exclusion of in-kind transactions involving ETH and the potential inclusion of Ethereum staking demonstrate the evolving landscape of cryptocurrency ETFs. As the SEC’s decision deadline approaches, market participants eagerly await the verdict, with investors closely monitoring the market performance of Ethereum and its impact on the broader crypto market.