Grayscale’s top crypto asset manager dashed his hopes of pitching an exchange-traded fund (ETF) for Ethereum futures, retracting his proposal to the Securities and Exchange Commission (SEC) on Tuesday.
This move comes amidst mounting skepticism over whether the SEC will greenlight the creation of Ethereum spot ETFs, which were once seen as a promising prospect after the agency gave the thumbs up to spot ETFs for Bitcoin back in January. The launch of Bitcoin spot ETFs kickstarted a bull run for the leading cryptocurrency, helping it set a new all-time high in March.
Regulatory Insights
In the notice of withdrawal for the proposed ETF Grayscale Ethereum Futures Trust, there’s no explanation why Grayscale flipped the script. The company appears to be shying away from the ETF strategy of “approve futures, deny listing,” which could have led to legal battles.
The notice simply lists the numerous delays the SEC has cited since its initial filing on September 19, 2023. The federal regulator stated it needed more time, delaying the proposal on November 15, December 18, and finally March 22 of this year.
James Seyffart, a Bloomberg ETF analyst, suggested that Grayscale wants the SEC to once again “approve futures, but deny listing,” setting up yet another legal showdown.
“It’s a good sign this time around they’re not gearing up for a lawsuit,” he tweeted.
It’s entirely possible that Grayscale withdrew its application for the Ethereum futures ETF to resubmit a corrected one, Safehurt acknowledged.
“It was essentially a Trojan horse aimed at creating the same circumstances that allowed Grayscale to win the GBTC lawsuit,” Seyffart said.
The federal appeals court sided with Grayscale against the SEC in August after the firm called out the agency for previously approving Bitcoin futures ETFs, allowing traditional investors to buy shares tracking the expected value of the digital asset while denying Bitcoin spot market ETFs tied to the current BTC price.
“Withdrawing and resubmitting the application is less work for the SEC, but at the same time, it means Grayscale or anyone else can’t file a lawsuit right now,” he noted.
Ethereum ETF Prospects
The odds of getting a spot ETF for Ethereum approved sadly continue to plummet, and hopes recently dimmed further because last year the SEC purportedly classified Ethereum as a regulated security, despite public statements claiming no decision had been made.
JP Morgan slashed its expectations regarding the SEC’s consideration of proposals for funds tied to ETH prices. Pointing to the regulator’s recent actions against Ethereum-related entities, the bank’s analysts stated that the situation doesn’t look too rosy for approval. Market sentiment keeps getting gloomier regarding this potential new investment instrument.
“In our view, recent news of the Securities and Exchange Commission investigating firms tied to the Ethereum Foundation also aligns with the belief that the likelihood of an Ethereum ETF approval by May is no more than 50%,” the report stated.
It also added that if an Ethereum ETF isn’t approved by next month’s deadline, it’s quite likely that contenders will sue the regulator.
“We believe the most probable scenario is that the SEC will ultimately lose this legal battle (similar to what happened with the Grayscale and Ripple legal battles last year), which means eventually the SEC will approve Ethereum spot ETFs (but not as soon as this May),” it added.
Despite Grayscale’s initial ambitions for an Ethereum futures ETF, the SEC’s resistance and legal complexities have thrown a wrench into the works. The withdrawal of the proposal hints at a strategic maneuver, possibly aiming for a different approach amidst uncertainties.
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