Battle for Ethereum ETFs turns messy in the US — what’s next?

Michael Saylor thinks they won’t launch at all, and even some fund issuers think it’s unlikely this year. Meanwhile, other countries are gaining a first-mover advantage.

The battle to launch exchange-traded funds based on Ethereum’s spot price in the U.S. is heating up — and so far, the journey looks similar to Bitcoin’s long and messy road to approval.

Once again, the U.S. Securities and Exchange Commission is dragging its heels on offering a definitive answer to the applications already made. A green light matters because it would allow investors to gain exposure to ETH without owning the underlying asset.

Grayscale and Franklin Templeton were both due to receive a response from the SEC in April, but the regulator’s now pushed their deadlines back to June.

Fidelity and BlackRock have had similar applications kicked into the long grass as well. VanEck and ARK Invest are due to receive a response later this month, but hopes of approval have been dwindling fast.

Why? Because there are signs that the regulator believes that Ether is a security, and not a commodity like Bitcoin.

A growing dispute

Back in June 2023, speaking in front of the House Financial Services Committee, SEC chair Gary Gensler had refused to say whether he believes ETH is a security.

The lack of a clear answer had spooked the crypto industry — especially considering this contradicted earlier guidance made by his predecessor Jay Clayton.

And even earlier than that, around the time of The Merge in September 2022, Gensler had hinted that the staking process may fall under securities rules.

Ether’s status matters because it determines which organization holds regulatory oversight in the U.S. — and if it is a security, this could cause big problems for other altcoins.

Consensus recently sued the SEC and leapt to Ethereum’s defense — arguing the commission’s “unlawful power grab threatens to undermine America’s position as a leader of the next generation of the internet.” 

Saylor’s prediction

MicroStrategy’s executive chairman Michael Saylor, a vocal Bitcoin supporter who spearheaded efforts to add hundreds of thousands of BTC to the company’s balance sheet, doesn’t believe that ETFs based on ETH’s spot price will ever see the light of day. Speaking at the annual Bitcoin for Corporations event, he warned:

“Some time this summer, it’ll be very clear to everyone that Ethereum is deemed a cryptoasset security, not a commodity. After that, you’re gonna see that Ethereum, BNB, Solana, Ripple, Cardano — everything down the stack — is just a cryptoasset security unregistered. None of them will ever be wrapped by a spot ETF, none of them will be accepted by Wall Street, none of them will be accepted by mainstream institutional investors as cryptoassets. [Bitcoin] is the one universal, consensus accepted, institutional-grade cryptoasset in the world. There won’t be another one.” 

Michael Saylor

Of course, you could argue that Saylor was bound to say this — especially considering that he believes BTC is the only cryptocurrency that is technically and ethically sound. Speaking at the Blockchain Economy Istanbul Summit back in July 2022, he had warned that Ether’s continual upgrades “introduce new attack surfaces” that undermine security and reliability.

What happens next? 

The bigger challenge now appears to be that there’s a lack of dialog between the SEC and firms hoping to bring an Ether ETF to market. As Barron’s reported last month, applicants aren’t being given “the critical feedback needed to finalize their products.” By contrast, BTC ETF issuers had engaged in a “robust back-and-forth” before their funds started trading.

Jan van Eck, whose eponymous investment firm is awaiting a verdict from the SEC, candidly told CNBC in April that he believes the application will “probably be rejected” — while Jean-Marie Mognetti from CoinShares predicted that no approvals will happen in 2024.

While the U.S. continues to be paralyzed by regulatory uncertainty, where a lack of clarity on Ether’s status is leaving crypto firms exasperated, other jurisdictions are gaining a first-mover advantage.

Although trading volumes were rather tepid on the first day, it remains significant that Hong Kong has now launched an ETH ETF, amid speculation this could one day open the door to investors from mainland China.

As S&P Global recently noted, funds based on Ether’s spot price have already been approved in Canada, Switzerland, Sweden and Germany — with some offering additional yield by offering staking returns as well.

With ETFs in other territories now boasting billions of dollars in assets under management, the U.S. risks falling further and further behind.