Ethereum ETFs in Doubt: BlackRock Filing Details SEC’s Play

• The SEC has not yet decided on the first Ether ETF as an old filing has raised questions about Ether’s classification.
• Analysts believe the SEC may reject applications due to how Ether will be categorized.
• The fate of several other Ether ETF applications hinges on the SEC’s upcoming verdict.

The U.S. Securities and Exchange Commission (SEC) is set to deliver a verdict on the first spot Ether ETF application by May 23, but a recent filing has cast doubt on the entire class of Ether ETFs. The filing, unearthed by legal experts, hints at the SEC potentially classifying Ether (ETH) as a security, a move that could significantly impact the cryptocurrency market.

SEC Roadblock for Spot Ether ETFs?

The unearthed details come from a March filing by BlackRock, which sought to list a spot Ether ETF on the Nasdaq. While the filing delayed the SEC’s decision on BlackRock’s ETF until June, it also raised a critical question: can Ether be classified as a commodity to qualify for a commodity-based ETF structure?

Analysts believe this could be a strategy by the SEC to reject spot Ether ETF applications. “The filing suggests they might deny these applications on the grounds that they’re improperly filed as commodity-based trusts holding a security,” explains Scott Johnsson , an Associate at Davis Polk and Wardwell.

This aligns with the current skepticism surrounding spot Ether ETF approvals. Bloomberg ETF analyst Eric Balchunas believes the SEC’s chances of approving these ETFs are “slim to none.”

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Will SEC Approve VanEck’s Offering?

The fate of several spot Ether ETF applications hinges on the SEC’s decision on VanEck’s offering, which is the first in line. If rejected, ARK 21Shares, Hashdex, Invesco Galaxy, BlackRock, and Fidelity applications could all face similar denials. Notably, Grayscale also withdrew its spot Ether ETF application earlier in May, further adding to the uncertainty.

The core of the issue lies in how the SEC classifies Ether. While SEC Chair Gary Gensler previously stated Ether wasn’t a security, reports suggest an ongoing SEC investigation into the cryptocurrency. This investigation and the recent filing create confusion for the industry.

All eyes will be on the SEC as they decide on VanEck’s application on May 23. Additionally, Chair Gensler’s speech at the Investment Company Institute summit on the same day may shed light on the SEC’s stance towards Ether and spot Ether ETFs.

On the Flipside

• The industry could challenge Ether’s security classification in court, delaying any final decision on spot Ether ETFs.
• Grayscale withdrawing its application could indicate a shift in its strategy, not necessarily a reflection on the overall viability of spot Ether ETFs.
• Even if the SEC rejects VanEck’s application, it doesn’t necessarily mean all future applications will be denied.

Why This Matters

The SEC’s decision on the first spot Ether ETF application could set a precedent for the entire class, potentially derailing efforts to bring these investment vehicles to market and impacting how investors access and trade Ether, a major cryptocurrency with significant influence on the broader market.

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