SEC Delays on Ethereum ETF Comments Raise Questions on Approval Timeline

The long-awaited Ethereum ETFs are still pending, as issuers await comments from the SEC on their S-1 filings submitted on May 31. Despite initial expectations of receiving feedback by June 7, at least two issuers have yet to receive any comments, with a new anticipated timeline of this week. This delay follows SEC Chair Gary Gensler's statement on CNBC that the S-1 form approvals would "take some time". The exact duration of this process remains unclear, with sources suggesting that the S-1 forms may undergo at least two more rounds of draft filings before being deemed ready.

The S-1 forms mark the second step in a two-step process toward launching spot Ethereum ETFs for trading. The first step was the approval of the 19b-4 forms, which occurred on May 23. The draft filings have revealed some details, including BlackRock's seeding of its ETF with $10 million and Franklin Templeton's planned 0.19% fee. As spot Ethereum ETFs prepare for launch, a key question looms: can they replicate the success of spot Bitcoin ETFs? Jag Kooner, Bitfinex's Head of Derivatives, estimates that they will bring in around 10-20% of the flows that have been going into spot Bitcoin ETFs.

The Ethereum ETF landscape is complex, with various issuers vying for approval. BlackRock, ARK Invest, Fidelity, Invesco Galaxy, and others have filed for a spot Ether ETF, following the SEC's approval of spot Bitcoin ETFs in January. The SEC's decision on spot Ether ETFs has been postponed multiple times, mirroring the delays in approving spot BTC ETFs. With seven Ether ETF applicants facing different deadlines, the SEC might issue its decision on all applications simultaneously, as seen with spot BTC ETFs.

The crypto community is divided on whether a spot ETH ETF will be approved in 2024. Bloomberg ETF analyst James Seyffart believes the SEC has implicitly accepted Ether as a commodity, given the approval of Ethereum futures ETFs. On the other hand, Morgan Creek Capital CEO Mark Yusko gives less than 50% odds of a spot Ether ETF being approved in the U.S. in 2024, citing the SEC's perceived hostility toward cryptocurrencies. Gary Gensler, the SEC Chair, has often argued that all cryptocurrencies except Bitcoin are securities.

The SEC's stance on Ether's classification as a security or commodity remains unclear. The approval of spot Bitcoin ETFs has sparked optimism around Ether ETFs, but the journey to approval is complex. The SEC's acceptance of Ethereum futures ETFs and the parallel listing and regulation of Bitcoin and Ethereum futures have positioned them as comparable assets. However, the SEC's scrutiny of staking practices and the unique characteristics of the Ethereum blockchain may prolong the approval process. Despite these challenges, the demand from institutional investors and the growing appetite for crypto-based securities drive the push for regulatory approval.