LUCKNOW (CoinChapter.com) — Grayscale Investments, a New York-based investment management firm, exudes confidence that the U.S. Securities and Exchange Commission (SEC) will approve spot Ethereum (ETH) exchange-traded funds (ETFs) in May. However, recent “chatter” about the regulator’s “lack of engagement” with applicants has raised concerns about the potential outcome.
Craig Salm, Grayscale’s Chief Legal Officer, firmly believes the ETFs should receive the green light. In an X post on March 25, he stated:
“I personally am not deterred by it and believe the ETFs should be approved.”
Salm’s optimism stems from the premise that many of the issues common to spot Ether ETFs were already addressed during the approval process for spot Bitcoin ETFs. He explained that crucial details concerning creation and redemption procedures, cash and in-kind models, asset protection, loss prevention, and custody “were figured out” in the Bitcoin ETF applications.
So in many ways, the SEC already has engaged, and issuers simply have less to engage on this time.
Salm said, underscoring that “the case is just as strong as it was for spot #Bitcoin ETFs.”
However, Salm acknowledged that ETF issuers seeking to incorporate staking into their spot Ether ETFs would face an additional hurdle to “hash out” with the regulator. Applicants like Ark 21Shares, Fidelity, and Franklin Templeton fall into this category.
Bloomberg Analysts Sound Alarm on Ethereum ETFs
Despite Grayscale’s confidence, Bloomberg ETF analysts Eric Balchunas and James Seyffart recently expressed concern over the SEC’s “lack of engagement.” They have since reduced their odds for an approved spot Ether ETF in May to a “pessimistic 25%.”
Balchunas believes the lack of engagement seems “purposeful” rather than mere “procrastination.”
Salm countered this skepticism by pointing to the recent approval of Ether Futures ETFs and regulating those products as commodity futures. He argues that this development puts the spot Ether ETFs in a strong position for approval, as futures and spot products have a “high correlation.”
Additionally, Coinbase’s chief legal officer, Paul Grewal, and Brian Quintenz, a former commissioner of the Commodity Futures Trading Commission, also shared a similar view last week.
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Optimism vs. Skepticism
However, there are reasons to be skeptical of Grayscale’s overconfidence. The SEC has not yet approved any spot crypto ETF outside of Bitcoin.
So, an Ethereum approval would represent an unprecedented step into a new arena of crypto regulation. SEC Chair Gary Gensler’s recent comments questioning whether Ethereum’s shift to proof-of-stake might violate the Howey test for investment contract securities have also cast doubt.
Ultimately, while Grayscale makes logical arguments based on the approval path for Bitcoin ETFs, they could be overly optimistic. The SEC has historically taken a very cautious stance on crypto. So, approving a spot Ethereum ETF amidst ongoing regulatory ambiguity would be a bold move.
The SEC must decide on VanEck’s application by May 23. Analysts predict that all applicants will learn their fate on that date.
Related post: SEC Delays Decision on Blackrock Spot Ethereum ETF Amid Raging Bull Market
