In a move towards gaining approval for a spot Ethereum exchange-traded fund (ETF), Ark Invest and 21Shares recently submitted an amended joint application, as revealed in a Feb. 7 S-1 filing. While some positive progress has been made, challenges lie ahead, and the ultimate decision from the U.S. Securities and Exchange Commission (SEC) is eagerly anticipated.
The Cash Creation and Redemption Process
One of the key requirements mentioned in the amended application is that financial firms permitted to purchase and redeem ETF shares will be limited to cash creations and redemptions, with no involvement of Ethereum (ETH) in-kind transactions. This is in contrast to recent approvals of spot Bitcoin ETFs, which allowed for cash as well as in-kind creations and redemptions. The reason behind the SEC’s preference for cash-based methods is not explicitly stated, but some reports speculate that it may be due to the challenges posed by handling cryptocurrencies under current U.S. regulations.
The filing also indicates the intention of the ETF issuers to engage in Ethereum staking. Specifically, 21Shares US LLC, the sponsor, states that it “generally expects to stake ether tokens from the Trust’s Cold Vault Balance.” However, it is important to note that the inclusion of staking is not guaranteed in the final proposal, as this section is bracketed and uncertain. Notably, Bloomberg ETF analyst James Seyffart predicts that the SEC will ultimately disallow staking.
Despite the challenges, the amendment made by Ark Invest and 21Shares is considered a positive development for spot Ethereum ETFs. This amendment comes in the wake of the SEC’s recent extension of deadlines for several other ETH ETF proposals from prominent firms such as BlackRock, Fidelity, Grayscale, and Invesco Galaxy. While today’s amendment signals progress, it is important to remember that the SEC must make a decision on a spot Ethereum ETF by May 23. Alongside VanEck’s proposal, other similar funds are also expected to be decided upon simultaneously.
The approval of a spot Ethereum ETF is a topic of mixed expectations and predictions. According to Polymarket’s prediction market, there is a reported 43% chance of approval in May. ETF analyst James Seyffart believes there is a 60% chance of approval, while a member from JP Morgan estimates a 50% chance. However, Standard Chartered Bank expects approval in May, whereas TD Cowen does not foresee approval until 2024. The diverse range of predictions reflects the uncertainty surrounding the SEC’s decision.
Market Response and Performance
The impact of the recent news on investor sentiment remains unclear. However, it is worth noting that Ethereum (ETH) has performed slightly better than the 24-hour market average. At the time of writing, ETH is up by 1.9%, the overall crypto market is up by 1.5%, and Bitcoin (BTC) has gained 1.3%.
As of press time, Ethereum is ranked as the second-largest cryptocurrency by market capitalization. The price of ETH has seen a 2.07% increase in the past 24 hours. With a market capitalization of $292.25 billion and a 24-hour trading volume of $9.42 billion, Ethereum remains a prominent and influential player in the crypto market.
Overall Market Snapshot
The global cryptocurrency market currently stands at a value of $1.69 trillion, with a 24-hour trading volume of $47.65 billion. Bitcoin dominance is currently calculated at 51.18%.
The journey towards obtaining approval for a spot Ethereum ETF continues to face challenges and uncertainty. The recent amendment filed by Ark Invest and 21Shares is a positive step, but the ultimate decision lies with the SEC, which is expected to make a ruling by May 23. While market predictions and expectations vary, the impact of these developments is yet to be fully realized. Only time will tell if a spot Ethereum ETF becomes a reality and how it will shape the future of the crypto market.
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