By Frances Yue
Cryptocurrency investors are not expecting the U.S. Securities and Exchange Commission to approve any spot ether exchange-traded funds this month - or anytime soon.
The SEC faces final deadlines on May 23 and May 24 to make decisions on VanEck and ARK's applications, respectively, for ether (ETHUSD) ETFs.
The U.S. regulator approved several bitcoin ETFs in January, after a federal court in August last year ordered the SEC to vacate its rejection of Grayscale Investments' application to convert its Bitcoin Trust product into an ETF. Many observers expect ether ETFs to follow a similar path.
"We do think that as long as Gary Gensler chairs the SEC, any advancement in the digital-asset space is going to have to come through the judiciary channels," Mark Connors, director of research at 3iQ Corp, said in a phone interview.
A group of analysts at J.P. Morgan led by Nikolaos Panigirtzoglou echoed the point. "The template is likely to be similar to bitcoin: with futures-based ethereum ETFs already approved, the SEC ( if it denies the approval of spot ethereum ETFs) is likely to face a legal challenge and eventually lose," they wrote in a recent note.
Regulators are likely reluctant to approve ether ETFs, because ETF investors have only just started to understand bitcoin and the situation for ether is far more complex, according to Roshan Shah, co-founder and chief executive at Decimal Digital Currency.
SEC Chair Gensler has repeatedly said that bitcoin was the only cryptocurrency he was prepared to publicly label a commodity rather than a security. Blockchain company Consensys in April filed a lawsuit against the SEC, seeking the court's recognition that ether is not a security, among other purposes.
Regulators may also be "wary of a slippery slope, which started with Bitcoin ETFs, because Ethereum ETFs could open the door for many other digital assets to access public markets," Shah wrote in emailed comments to MarketWatch.
Crypto traders are pessimistic about an approval of ether ETFs this month, with the Grayscale Ethereum Trust ETHE, a closed-end fund, trading at a 24.2% discount to its net asset value as of last Friday, according to data from Ycharts. That has widened from a 13.7% discount in January. Grayscale has applied to convert the Ethereum trust into an ETF.
That's in contrast with the Grayscale Bitcoin Trust GBTC, which saw its discount to net asset value narrow in the second half of last year, as investors expected the SEC to approve its conversion to an ETF.
Shah said he expects ether price to suffer in the short term, as investors continue their rotation out of ether into bitcoin.
While ether has risen 26% so far this year, it has underperformed bitcoin (BTCUSD), which has seen a year-to-date gain of 45%, according to Dow Jones Market Data.
-Frances Yue
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05-13-24 0933ET
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