Author: Koala Finance
On May 24, the U.S. Securities and Exchange Commission (SEC) officially approved the 19b-4 filings of eight spot Ethereum ETFs, including BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark Investment, Invesco Galaxy, and Franklin Templeton. From the Chicago Mercantile Exchange Group launching Ethereum futures to members of Congress urging the SEC to approve spot funds, many factors led to this historic decision by the U.S. financial regulator.
In fact, the approval of the Ethereum ETF can be said to be the result of nearly a decade of hard work in the crypto industry. Koala believes it is worth reviewing this bumpy road.
December 2017: CME launches Bitcoin futures
CME Group CEO Terry Duffy said at the time that the new product would provide transparency, price discovery and risk transfer capabilities in light of growing customer interest in the evolving cryptocurrency market. It also brings the largest crypto asset into the CFTC-regulated derivatives market.
February 2021: CME launches Ethereum futures
About three years after the launch of bitcoin futures, the Chicago Mercantile Exchange (CME) said ETH futures would allow a range of customers to hedge ether positions in the spot market. CF Benchmarks’ Sui Chung said in a statement at the time that derivatives have become “the preferred route for institutional investors to enter cryptocurrencies.”
October 2021: US securities regulator gives green light to ETFs holding Bitcoin futures contracts
Gary Gensler of the Securities and Exchange Commission (SEC) said at the Aspen Security Forum that the SEC will "look forward" to reviewing documents limited to bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME). Fund company ProShares was the first company to launch such a product. Its Bitcoin Strategy ETF (BITO) grew to more than $1 billion in assets within days of its launch.
June 2022: Grayscale Investments files lawsuit against SEC
The crypto asset manager filed a petition for review with the District of Columbia Court of Appeals after the U.S. Securities and Exchange Commission rejected the Grayscale Bitcoin Trust (GBTC) conversion into an ETF. The company argued that the SEC’s decision to allow the launch of a Bitcoin futures ETF but not the GBTC conversion was “arbitrary and capricious.”
May 2023: Issuers submit and withdraw Ethereum futures ETF applications
Issuers such as Grayscale and Bitwise have filed for Ethereum futures ETFs, only to abandon those plans about a week later. The move is reminiscent of when VanEck and ProShares revealed plans to launch an Ethereum futures ETF in August 2021, only to withdraw the plans just two days later.
July/August 2023: Ethereum futures filings resurface
Volatility Shares applied to the U.S. Securities and Exchange Commission at the end of July that year to restart the Ethereum futures ETF plan. In the following days, other fund groups followed suit. The ETF company seemed to have lost its first-mover advantage and eventually gave up the bid.
August 2023: Grayscale wins lawsuit against SEC
The judge ruled that the SEC did not properly explain its different treatment of similar products when it rejected Grayscale’s bid for a spot Bitcoin ETF. In other words, they wrote, “The Commission’s unwarranted disregard for the obvious financial and mathematical relationship between spot and futures markets does not meet the standard of rational decision-making.” In simple terms, this court victory against the regulator forced the SEC to reconsider its ruling and ultimately played an important role in paving the way for the spot Bitcoin ETF to begin trading a few months later.
September 2023: Issuers begin applying for spot Ethereum ETFs
ETF VanEck first disclosed plans for a U.S. spot Ethereum ETF in 2021 and raised its bid again in early September 2023. Ark Invest and 21Shares did the same. This kicked off a 240-day SEC review cycle that expires today. The companies that eventually applied for similar products included BlackRock, Fidelity, Grayscale, Franklin Templeton, Invesco, Bitwise, and Hashdex.
October 2023: Six Ethereum futures ETFs begin trading in the U.S.
VanEck, Bitwise and ProShares launched ether futures funds in October. Valkyrie Investments also began adding ether futures contracts to its bitcoin futures ETF at the time. Many industry observers believe that the initial inflows into these products have been disappointing. Neena Mishra, director of ETF research at Zacks Investment Research, attributed the lack of demand to investors waiting for pure play through spot ETFs. She told Blockworks at the time: "Now we are hoping that the spot bitcoin ETF will be approved sooner than expected. The debut of the ether spot ETF will also be coming soon."
January 2024: SEC approves spot Bitcoin ETF
This is a landmark decision, but it has raised questions for some about when a spot Ethereum ETF will follow. Notably, SEC Chairman Gary Gensler said in a statement on January 10, the day the SEC approved the spot Bitcoin fund, that the commission’s action was “limited to ETPs that hold a non-security commodity, Bitcoin.” Gensler added: “This in no way implies that the Commission is willing to approve listing standards for crypto asset securities.”
March 2024: Bitwise applies for spot Ethereum ETF
March: Bitwise also published a correlation analysis to replicate the SEC’s approach to evaluating Bitcoin. “We believe the results show a strong correlation between the ETH spot market and the CME ETH futures market, at a level similar to the SEC’s analysis in its spot Bitcoin ETF approval order,” Bitwise wrote in a post at the time.
April 2024: Consensys sues SEC
The company behind MetaMask claims in its lawsuit against the SEC that the agency is trying to regulate ETH as a security, "despite the fact that ETH does not possess any security attributes." The SEC's stance on whether to consider ether a security or a commodity is unclear. In a 2018 speech, William Hinman, then director of the SEC's Division of Corporation Finance, said that "the current offering and sale of ether is not a securities transaction." When asked whether ETH is a security or a commodity during an April 2023 meeting of the House Financial Services Committee, Gensler did not give a clear answer.
May 2024: Optimism mounts over Ethereum ETF approval
Bloomberg Industry Research analysts raised the odds of approval of a 19b-4 related to an Ethereum ETF from 25% to 75% on Monday, driving ETH prices higher. Bloomberg analysts James Seyffart and Eric Balchunas noted that the SEC has increased engagement with fund issuers, which may be due to some Democrats looking to change their anti-crypto stance. The issuer subsequently filed revised Ethereum ETF documents on Tuesday and Wednesday, clarifying that the proposed fund would not pledge its holdings. May 2024: Cryptocurrency Gains Bipartisan Support The House of Representatives passed the 21st Century Financial Innovation and Technology Act on Wednesday - the second cryptocurrency-focused legislation to advance in Congress this month. 71 Democrats joined Republicans in voting in favor. On the same day, five members of Congress (three Republicans and two Democrats) wrote to Gensler urging the SEC to approve a spot Ethereum ETF.
Now, the crypto industry has finally reached a historic moment, and it’s all worth it.
