The latest news from Barron’s indicates that the U.S. Securities and Exchange Commission (SEC) has informed exchanges that it is “inclined to approve” Ether (ETH) exchange-traded funds (ETFs). According to insiders, SEC staff told exchanges that these products are likely to be approved. The agency has provided comments on these applications, and if resolved in a timely manner, approval could be granted as early as this week.
According to Reuters, three insiders revealed that the SEC has asked Nasdaq and CBOE to accelerate the updating of their Ethereum ETF applications, indicating that the agency may be prepared to approve these applications. Surprisingly, SEC officials requested Nasdaq and the Chicago Board Options Exchange to quickly update and amend the documents, a process that typically occurs before approval.
On May 21, at 4 a.m. Beijing time, foreign media reported that the SEC suddenly requested institutions seeking to list and trade Ether ETFs to update key documents related to their products. Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart raised the probability of approval for Ether ETFs from 25% to 75%. Some analysts believe that this sudden change in the SEC’s stance may be due to the Biden administration’s desire to soften its crypto policy to avoid losing votes.
According to CoinDesk, three insiders told CoinDesk that the SEC has asked exchanges to expedite the updating of their 19b-4 applications, indicating that they may approve these applications before the key deadline on Thursday.
However, this does not mean that the ETFs will be approved. The potential issuers still need to have their S-1 applications approved before the products can begin trading. An insider said that the time it takes for the SEC to approve S-1 filings may be indefinite, as it is not subject to deadline constraints.
According to an insider, a company currently in negotiations with the SEC expressed the feeling that they may be on the right track for approval, which is contrary to the feeling a few weeks ago that the SEC was dragging its feet.
Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart raised the probability of approval for Ether ETFs from 25% to 75% after hearing the news that the SEC may have a more favorable attitude towards the applications. They later corrected their statement, stating that this probability is related to the approval of the 19b-4 applications. A decision on VanEck’s Ether ETF is expected to be made by the SEC on May 23.
The SEC has been investigating whether Ethereum is a security and launched a formal investigation after the network transitioned from a proof-of-work to a proof-of-stake consensus mechanism. If the SEC determines that Ethereum is a security, it may be one reason for rejecting the applications for Ether ETFs.
Prometheum has just conducted a new test on the SEC’s view of whether ETH is a security. The special purpose brokerage firm announced on Monday that its Ethereum custody service has soft-launched. The company ultimately plans to launch custody and trading services for other digital assets – importantly, assets that are considered securities, not commodities, in the United States.
“It appears that the political factors surrounding this issue may have changed rapidly,” Bloomberg analyst Eric Balchunas told The Block, adding that overall, cryptocurrencies seem to have become more politicized leading up to the upcoming presidential election. While he said he couldn’t be completely sure, the Biden administration may be trying to appear less stubborn.
Recently, former U.S. President Trump positioned himself as a more crypto-friendly candidate. He expressed his acceptance of cryptocurrency donations and dined with buyers of his NFT portrait. Trump is the Republican presidential candidate who will compete against Biden.
Balchunas said that considering how much attention the Bitcoin ETFs have received, “if [Ether ETFs] are rejected, the story will continue.” The Bloomberg analyst added that rejecting Ether ETFs could reinforce the current government’s opposition to cryptocurrencies, similar to how Biden might veto a bill overturning certain cryptocurrency custodian accounting standards set by the SEC.
The political pressure surrounding cryptocurrencies seemed evident last Thursday when legislation supporting cryptocurrencies was passed in the U.S. Senate and won support from some key Democrats.
The Senate passed a resolution overturning SEC staff accounting bulletin 121 by a vote of 60 to 38, which would establish specific accounting standards for companies acting as cryptocurrency custodians. Several Democratic lawmakers, including Senate Majority Leader Chuck Schumer (D-N.Y.), who supported the measure, voted for it.
The first deadline for a series of proposed Ether ETFs is May 23, with VanEck’s proposal being the first to be reviewed. One factor in the SEC’s rejection of the application may be its hesitation in classifying cryptocurrencies.
In recent weeks, the question of whether the SEC has jurisdiction over Ethereum has become very important, as there are reports that the agency is issuing subpoenas to companies that have business dealings with the Ethereum Foundation. ConsenSys stated that in a complaint against the SEC last month, the SEC decided that ETH is a security.
According to an insider, cooperation between companies and the SEC on Ether ETFs has not reached the strong level seen earlier this year when financial institutions negotiated approval for Bitcoin ETFs. Wall Street giants like BlackRock and Fidelity launched Bitcoin ETFs in January, and many traditional financial companies purchased shares of these new funds.
Summary:
The SEC has indicated that it is inclined to approve Ether ETFs, and exchanges have been asked to expedite the updating of their applications. Approval is not guaranteed, and the issuers still need to have their S-1 applications approved. The sudden change in the SEC’s stance may be due to the Biden administration’s desire to soften its crypto policy. The decision on VanEck’s Ether ETF is expected on May 23.