U.S. issuers and other companies expect the Securities and Exchange Commission to reject their applications to launch exchange-traded funds (ETFs) linked to the price of ether after discouraging meetings with the agency over the recent weeks, four people said.
VanEck, ARK Investment Management and seven other issuers have filed applications with the SEC to list ETFs that would track the spot price of the world's second-largest cryptocurrency after bitcoin. The SEC must rule on VanEck's and ARK's applications, which are the first in line, by May 23 and May 24, respectively.
Recent meetings between issuers and the SEC have been one-sided and agency staff have not discussed substantive details of the proposed products, said four people who participated in those meetings.
That contrasts with the intensive and detailed discussions between issuers and the agency in the weeks before its historic approval of bitcoin ETFs in January, said the people who declined to be identified because the discussions are private.
The agency, led by crypto skeptic Gary Gensler, rejected spot bitcoin ETFs for more than a decade due to fears of market manipulation, but was forced to approve them after Grayscale Investments won an appeal in justice.
Issuers argued in meetings that these ETFs and the ether futures-based ETFs that the SEC approved in October set a precedent for spot ether products, and attempted to address regulatory concerns potential, the people said. SEC staff listened but did not express specific concerns or ask questions, suggesting the agency will deny the requests, they added.
This would be a setback for the cryptocurrency industry which hoped spot bitcoin ETFs would pave the way for other similar products and bring cryptocurrencies into the mainstream.
“It seems more likely that approval will be delayed until late 2024 or even longer,” said Todd Rosenbluth, head of ETF analysis at data firm VettaFi, who is following the issue closely. . “The regulatory situation still seems unclear.
Some issuers said they still plan to file additional disclosure materials with the SEC to continue the conversation.
An SEC spokesperson said it does not comment on individual filings. VanEck CEO Jan van Eck told CNBC this month that the company's application would “probably be rejected.”
ARK did not respond to requests for comment. Asked by Reuters at an event this week about her ether request, ARK CEO Cathie Wood said only that ether could become an important asset class.
According to Hong Fang, president of cryptocurrency exchange OKX, the price of ether reflects the expected rejection. Although the cryptocurrency is up 39% this year, it has struggled to keep pace with bitcoin, which is up more than 51% and hitting new highs last month.
“There is more downward pressure on prices as people expect them to rise,” Mr Fang said.
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The SEC has held only a handful of meetings on ether products so far, according to sources and SEC filings.
The only meeting disclosed by the regulator took place last month with cryptocurrency exchange Coinbase. It concerned Grayscale's request to convert its Ethereum Trust into an ETF, of which Coinbase is the custodian.
The SEC approved bitcoin spot ETFs on the basis that existing market oversight mechanisms for bitcoin futures ETFs, which it approved in 2021, were sufficient for spot ETFs as well.
Coinbase argued that the same reasoning applies to spot ether products, given that ether futures and the spot market are highly correlated, according to the SEC disclosure.
If the SEC rejects ether ETFs, several candidates expect it to do so based on general issues, such as the nature and depth of statistical data on the underlying ether market.
The agency could argue that it had little time to observe ether futures, said Matt Hougan, chief investment officer at Bitwise Asset Management, which filed an application to create a spot ether ETF.
“I think that would be the mechanical reason why it would be pushed back, because they just want to see more data.
Some believe that a rejection could give rise to new legal action.
“It’s entirely possible that we end up seeing ether ETFs,” one of the sources said. “But not before someone gets rejected and goes to court. (Reporting by Suzanne McGee and Hannah Lang in New York; additional reporting by Dhara Ranasinghe in London. Editing: Michelle Price and Marguerita Choy)
