The Securities and Exchange Commission of the United States recently announced postponing the decision on Grayscale’s Ether Futures ETF application. Grayscale in addition to Bitcoin also operates as an Ethereum Trust that the firm intends to convert in an Ethereum ETF before the end of May.
The fund filed for an application with the SEC but the regulator agency has availed an extension regarding the decision.
As per a Cointelegraph article, SEC noted that it is set to postpone the 31 March deadline to 30th May regarding finalizing a decision to approve Grayscale’s Ether Futures Trust ETF.
The agency stated that it is suitable to designate a longer period to issue an order for approving or disapproving the proposed rule change such that the regulatory agency has sufficient time to consider policy changes and deliberate on the impact of associated issues.
SEC postponed approving the futures ETF product of Grayscale on December, 2023. The agency noted at the time that it was seeking public input regarding the matter whether the ETF should or should not be listed.
The remarks from the regulatory agency were issued three months after Grayscale applied for an application to list and trade shares of Grayscale Ether Futures ETF at NYSE Arca Rule 8.200-E in September last year.
SEC’s Stance on Ethereum ETPs
Bloomberg analyst James Seyffart claims that Grayscale’s futures ETF application is a Trojan horse to impact SEC’s decision in favor of its spot Ethereum ETF. He stated that SEC approves the futures ETF application of Grayscale it would create a legal precedent for the regulator to grant approval of its spot Ethereum ETF application.
On 25th January, SEC delayed another application request from Grayscale regarding spot Ethereum ETF noting that the matter was open to public comments.
After the approval of several Bitcoin spot ETFs on 10th January, cryptocurrency industry analysts have become more cynical as SEC is going to assume a tougher stance on digital asset ETFs going forward.
Cointelegraph added commentary of John Lo founder of Capital who opines that SEC is likely to take a stricter regulatory stance on all crypto-based ETFs, especially Ethereum-backed ETPs.
SEC has thus far delayed its decision regarding 4 spot Ethereum ETFs application including BlackRock and Fidelity. Another article published in Cointelegraph noted that SEC is facing pressure from Senators for refraining from approving more crypto ETFs.
Two Democratic Senators have claimed that more crypto-ETFs can expose investors to risks such as fraud and manipulation. These Senators have cited enormous risk exposure to retail investors.
US Senators Claim that Crypto-Backed ETFs are Unsafe for Retail Investors
In a 11th March letter, Senator Jack Reed and Senator Laphonza Butler noted that new crypto-backed ETFs can expose the investors to thinly traded markets filled with fraud and manipulation.
At the time of publication, SEC has received 8 Ethereum spot ETF application by major financial institutions. Some analysts opine that after ETH ETPs firms are likely to file and issue ETFs backed by altcoins.
Retail Investors Could Face Considerable Risks
The Senators noted that retail investors can face considerable risks from ETPs whose prices are susceptible to pump/dump and other fraudulent schemes. Reed and Butler made a case for the regulator to halt the ETF approvals to Bitcoin spot ETPs.
They argued that markets for Bitcoin indicated serious weakness it was more established and well-scrutinized than market for other small cryptocurrencies.
The Senators retained that SEC should take several specified steps with the existing Bitcoin ETFs. Crypto VC Paradigm executive Alexander Grieve noticed that the success of Bitcoin spot ETFs has raised some eyebrows at Capitol Hill.
He posted a copy of the open letter sent from Butler and Reed to SEC Chief noting that it was proof of increasing political pressure on Gensler.
He noticed that under these circumstances Ethereum ETF approval within May seems like an unlikely event in May. Bloomberg analyst Erci Balchunas noted in a 15th March post that the blockbuster success of Bitcoin ETFs has upset some high-ranking officials. He claimed that this is the main reason that various analysts have become cynical regarding spot ETH ETF approval.
