SEC requests updates on Ether ETF filings, signalling possible progress

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21st May 2024 – (New York) The U.S. Securities and Exchange Commission (SEC) has instructed several exchanges to expedite updates to their 19b-4 filings for proposed ether-based exchange-traded funds (ETFs). This development comes ahead of a critical deadline set for this Thursday, indicating a potential shift towards approval of these financial products.

Traditionally, the SEC had been anticipated to reject these filings for ETFs that would trade shares of spot ether (ETH). However, the regulatory body’s recent request suggests that there may be an evolving stance towards these applications. Despite this, approval is not guaranteed, as the exchanges must also secure approval for their S-1 applications before the ETFs can commence trading. The timeline for S-1 approvals remains uncertain and is not constrained by any specific deadline.

The urgency imposed by the SEC for updates has led stakeholders to cautiously optimise their outlook. Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart recently adjusted their expectations, increasing the likelihood of approval for a spot ether ETF from 25% to 75% based on the perceived shift in the SEC’s approach. However, they later clarified that this revised probability specifically pertained to the approval of the 19b-4 filings, not the ETFs themselves.

The context of these developments is deeply intertwined with ongoing regulatory evaluations concerning ether’s classification. The SEC has been intensively scrutinising whether ether, the principal asset of the Ethereum blockchain, should be considered a security, especially following Ethereum’s transition from a proof-of-work to a proof-of-stake consensus mechanism. This classification could significantly impact the approval process for ether ETFs.

Adding to the complexity, Prometheum, a special purpose broker, announced the soft launch of its ether custody service, planning to expand into custody and trading services for other digital assets—specifically those recognised as securities in the U.S.