The cryptocurrency industry is poised for another significant milestone as the U.S. Securities and Exchange Commission (SEC) has given preliminary approval for the launch of the first U.S. exchange-traded funds (ETFs) investing directly in Ether. This move, which seemed improbable just a week ago, marks a substantial development for the second-largest digital asset by market capitalization.
On Thursday, the SEC approved proposals from major financial exchanges including Cboe Global Markets Inc., Nasdaq, and the New York Stock Exchange to list products tied to Ether. However, fund managers must still obtain separate approval from the SEC before these products can be officially launched. The timeline for this final approval remains uncertain.
The potential introduction of Ether ETFs follows the historic debut of U.S. spot-Bitcoin ETFs in January, which have since accumulated $57 billion in assets. This landmark success has spurred competition among prominent fund managers such as VanEck, ARK Investment Management, BlackRock Inc., and Fidelity Investments to be the first to launch Ether ETFs.
Despite the excitement, there is some skepticism about whether Ether ETFs will attract the same level of inflow as Bitcoin products. Lara Crigger, an analyst at data provider VettaFi, expressed doubts about Ether’s ability to generate similar demand. “Although Ether has more use cases, it’s a much smaller market than Bitcoin, with lower awareness and name recognition among the general investing public,” she noted.
On Friday morning in London, Ether experienced a 3% decline to $3,640, trimming its weekly gain to 18%. Despite this dip, it remains Ether’s best weekly performance since the beginning of 2023, according to Bloomberg data. The broader crypto market, including Bitcoin, also saw declines.
Rich Rosenblum, president of GSR Markets Ltd., a liquidity provider, described the SEC’s decision as a significant milestone for the crypto industry. “In the 12 years I’ve been trading this space, this is the most incredible thematic whipsaw I can remember,” Rosenblum remarked, highlighting the abrupt shift in regulatory stance.
The SEC’s recent order closely mirrors the one issued in January that allowed the listing of Bitcoin ETFs. It included an extensive analysis of the correlations between the Ether spot market and futures contracts traded on the CME Group Inc. in Chicago. These correlations are a key consideration for regulators, who rely on CME’s surveillance systems to detect and manage trading anomalies.
Coinbase Global Inc. contributed to the SEC’s decision with a study demonstrating that the correlation between spot and futures markets for Ether was approximately 85% over one-minute intervals between March 2021 and January 2024. This correlation was higher than that observed in the Bitcoin market review. The SEC verified these findings, concluding that prices in the spot and CME Ether futures markets generally move in close, albeit not perfect, alignment.
Beyond the introduction of ETFs, these developments could have broader implications for regulatory policy. SEC Chair Gary Gensler has not clearly stated whether Ether qualifies as a security, leaving crypto enthusiasts concerned about the potential for stricter regulatory oversight. This ambiguity has implications not just for Ether but also for various projects built on the Ethereum blockchain.
As the crypto industry awaits further regulatory decisions, the approval of Ether ETFs represents a pivotal moment, potentially setting the stage for broader acceptance and integration of digital assets within traditional financial markets.