The new funds, known as spot ether ETFs because they buy and sell the digital currency itself, will allow mainstream investors to buy and sell ether as easily as stocks or mutual funds. Ether is the in-house token on the Ethereum blockchain, an open software platform for developers to build and operate crypto applications, much like iOS or Android.
A spokesperson for the SEC said the agency won’t be commenting beyond the approval order.
Thursday’s decision paves the way for the eventual trading of ether ETFs, by allowing exchanges to list such products. At least 10 asset managers, including BlackRock and Fidelity Investments, applied to launch the first batch of ether ETFs. Those companies still need approval to start trading their specific funds on the exchanges through a filing called an S-1. The SEC could stall on approving that step.
The ruling marks at least a partial retreat from SEC Chair Gary Gensler ’s efforts to keep crypto from becoming more ingrained in traditional finance and potentially opens the door for other funds backed by smaller, riskier tokens.
The SEC approved funds that directly hold bitcoin in a landmark decision in January, only after losing a court challenge. In that case, however, the funds started trading the next day because the asset managers’ S-1 applications were approved concurrently. Before that, everyday investors who wanted to buy and sell digital currencies had to either trade on crypto exchanges and incur hefty transaction fees or purchase products that track the token in less direct ways.
The bitcoin ETFs have been a smash hit , raking in more than $30 billion in investor assets and helping feed into a frenzy that has sent the cryptocurrency’s price to a record high .
It isn’t clear, though, that the same demand exists for funds backed by ether. More than half a dozen futures-based ether ETFs are already on the market, and they haven’t attracted much interest.
At $450 billion, ether’s market value is about one-third the size of bitcoin’s, and the token’s price can be prone to sharp moves in either direction. Ether was little-changed Thursday. It has climbed 22% over the last four trading sessions as traders ramped up their bets of the ETFs’ approval.
Some investor watchdogs protested the decision, calling it a mistake by the securities regulator. Better Markets, a group that advocates for oversight of the financial sector, cautioned that “ether is an extremely volatile asset" and said that “the Ethereum network itself has features that make it vulnerable to fraud and manipulation."
“The SEC failed to live up to its mission to protect investors and the markets," the group said.
The decision caught the crypto industry by surprise because it suggests that Gensler has given up his fight to classify ether as a security, securities lawyers say.
The SEC chair had long suggested that tokens outside of bitcoin were securities, instead of commodities. The distinction determines which agency oversees the asset and the regulations to which it is subject.
The SEC was thought to be considering whether to sue companies that touch the network behind ether as part of the fight. Crypto firm Consensys sued the agency pre-emptively last month after receiving subpoenas and a request for testimony from a senior officer.
Classification as a security would have likely led to an industry crackdown . Crypto exchanges and brokerages could have faced penalties for having sold an unregistered security, or even been forced to stop selling the coin.
Yet Thursday’s approval of the commodities-based ether ETFs suggests the SEC has concluded the token isn’t a security after all.
Asset managers including Grayscale Investments , Invesco and Galaxy Digital applauded the SEC’s decision and said they hope it indicates a willingness by the agency to approve the final launch of the products.
The crypto industry has scored some recent wins in Congress as well, with some Democrats siding with the increasingly crypto-friendly Republicans and spurning Gensler’s hard-line approach.
On Wednesday, the House of Representatives voted 279-136 for a bill that rejects the SEC’s approach of handling most cryptocurrencies as securities and strengthens the role of the Commodity Futures Trading Commission, a regulator widely seen as more crypto-friendly.
Although the bill is unlikely to pass the Senate, the White House said in a statement that it was “eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets." The statement cheered crypto executives who noted that President Biden didn’t threaten to veto the bill. The industry has stepped up its campaign spending ahead of the November election, threatening to target lawmakers hostile to crypto.
The asset managers say the SEC appeared to make a U-turn on the ether ETFs in recent days.
They had broadly expected the SEC to deny their applications due to its lack of engagement. That changed Monday, when the regulator asked issuers for updates to their applications just ahead of the decision deadline. In the case of the bitcoin ETFs, the SEC had asked questions and given feedback on submissions for more than a month prior.
The updated applications show minor changes, with some asset managers removing staking, which allows investors to earn interest on their ether holdings. The process allows ether owners to pledge their holdings and computing power to help the Ethereum network verify transactions.
That activity has been in the SEC’s crosshairs. In February 2023, the regulator ordered crypto exchange Kraken to stop offering staking in the U.S. and sued Coinbase Global a few months later.
The Ethereum network has grown popular in recent years. Unlike with bitcoin’s network, developers can build applications on top of it, in a similar manner to how apps are built for iOS or Android. The surge in usage has similarly raised the value of ether, the network’s token that powers transactions.
Write to Vicky Ge Huang at vicky.huang@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
https://news.google.com/rss/articles/CBMijwFodHRwczovL3d3dy5saXZlbWludC5jb20vbWFya2V0L2NyeXB0b2N1cnJlbmN5L3NlYy13aWRlbnMtYWNjZXNzaWJpbGl0eS1vZi1jcnlwdG8taW52ZXN0aW5nLXdpdGgtYXBwcm92YWwtb2YtZXRmcy1mb3ItZXRoZXItMTE3MTY1MjcxMTgyNzUuaHRtbNIBkwFodHRwczovL3d3dy5saXZlbWludC5jb20vbWFya2V0L2NyeXB0b2N1cnJlbmN5L3NlYy13aWRlbnMtYWNjZXNzaWJpbGl0eS1vZi1jcnlwdG8taW52ZXN0aW5nLXdpdGgtYXBwcm92YWwtb2YtZXRmcy1mb3ItZXRoZXIvYW1wLTExNzE2NTI3MTE4Mjc1Lmh0bWw?oc=5
2024-05-24 06:05:35Z
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