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The U.S. Securities and Exchange Commission has taken the first steps in approving spot Ethereum (ETH) exchange-traded funds, or ETFs, for trading on U.S.-based stock exchanges.
On May 23, the SEC approved exchange applications to list and trade spot ether ETFs, clearing the way for approvals of the funds themselves. Up until this point, only Ethereum futures ETFs had been approved for trading in the United States.
ETFs are investment vehicles similar to mutual funds. However, they trade more similarly to stocks, on traditional stock exchanges. Futures are complex derivative investments that track the future price of an asset. In contrast, a spot ETF tracks an investment’s current price.
Now, crypto fans and investors are rightly wondering what the potential approval of ETH ETFs mean for Ethereum and the rest of the crypto industry.
SEC Approves Exchange Listings of Spot Ethereum ETFs
On May 23, the SEC issued a rule change that will allow three different exchanges to list and trade eight spot ether funds. The exchanges whose applications were approved—and the ETFs they will potentially list—include:
- NYSE Arca. Grayscale Ethereum Trust and Bitwise Ethereum ETF
- Nasdaq. iShares Ethereum Trust
- CBOE BZX. VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund and Franklin Ethereum ETF
Although this is a huge win for proponents of ETH ETFs, the issuers still need to gain the SEC’s approval before the funds can officially start trading. This process could take weeks or even months, and not all of the funds are guaranteed to receive approval.
Still, given that the chances of approval looked slim prior to Monday, May 20, this is a significant development.
On May 20, reports began circulating that the SEC requested updated information from potential issuers. This sparked new hope among crypto analysts and investors that spot ETFs were indeed poised for approval by the May 23 deadline.
Previously, many had believed that the ETFs were headed toward rejection due to the SEC’s seeming lack of interest in the applications. However, as investor optimism turned around, ETH rose more than 20% leading up to the deadline.
Following the SEC decision, both Ethereum and bitcoin experienced relatively muted price action, likely due to the fact that the approval was priced in and that more approvals are needed before trading begins.
What the ETH ETF Approval Means for Ethereum
Perhaps the biggest impact of the spot ether ETF approvals is the insinuation that Ethereum is a commodity rather than a security.
While the SEC did not explicitly state that Ethereum is a commodity, the ETF products referenced in the decision were defined as “commodity-based trust shares.” This wording largely puts to bed the debate over how to classify unstaked Ethereum.
The implications of this classification are potentially significant and wide-ranging. For starters, if more cryptocurrencies are classified as commodities, the SEC’s role in regulating cryptocurrencies could be more limited. Regulation could instead fall more to the U.S. Commodity Futures Trading Commission, or CFTC.
Separately from the ETH ETF decision, a bipartisan bill recently passed in the U.S. House of Representatives would effectively split regulation between the SEC and CFTC. The SEC would regulate cryptocurrencies as securities and the CFTC would handle any crypto regulation related to commodity classifications.
Additionally, classification as a security could affect various other companies and cryptocurrencies involved in or fearful of litigation with the SEC. Already, Coinbase cited the SEC’s decision in an interlocutory appeal on Friday, May 24, just one day after the decision was published.
XRP, SOL: Next in Line?
Despite the fact that spot Ethereum ETFs have not received full approval yet, some are already beginning to speculate on which crypto could be next to have its own spot ETF.
Top of mind for such speculations are Ripple’s XRP (XRP) and Solana (SOL). In particular, Solana, an Ethereum rival, seems to be next on analysts’ and investors’ minds.
SOL is the fifth-largest crypto by market cap, with only stablecoin Tether (USDT) and Binance Coin (BNB) standing in between it and ETH. Given the similarities in its underlying technology, many believe that the SEC would be hard pressed to deny Solana a spot ETF now that it has moved toward approving Ethereum’s.
While this prospect is certainly exciting for crypto enthusiasts, it is important to note that if this does happen, it will not be for a while—likely 2025 at the earliest.
Crypto Pushes Toward Mainstream Acceptance
Following years of legal battles and pushback from the SEC, the crypto industry appears to be getting a warmer welcome from the regulatory agency.
Softer regulatory action from the SEC—and an apparent change of heart among multiple politicians and parties—could be signaling a new era of crypto acceptance in mainstream finance.
Former president Donald Trump recently changed his stance on cryptocurrency, posting about his support on social media and even beginning to accept crypto donations for his 2024 presidential campaign.
Additionally, many have speculated that the SEC’s last-minute decision to take this first step to approve spot Ethereum ETFs may have come from political pressure within President Joe Biden’s administration.
Either way, one thing is for sure. No one wants to be on the wrong side of crypto lately. This bodes well for the future of the crypto industry.
