Grayscale Investments has employed an unconventional strategy in its bid to secure approval for a spot Ether ETF. ETF analyst James Seyffart has characterized Grayscale’s application for an Ether futures ETF as a tactical maneuver aimed at pressuring the U.S. Securities and Exchange Commission (SEC) into approving its spot Ether ETF.
The SEC’s dilemma to approve or deny ETFS
Grayscale’s move comes at a time when the SEC faces a decision on the asset manager’s Ether futures ETF application, submitted through a form 19b-4. This approach is notable because it deviates from the path taken by the approximately 40 Ether ETF products that have received approval, none of which used the 19b-4 process. Seyffart’s analysis suggests that this move could place the SEC in a challenging position.
Should the SEC approve Grayscale’s Ether futures ETF, the asset manager could leverage this decision to bolster its case for the approval of its spot Ether ETF. Conversely, if the SEC denies the application, Grayscale might argue that the regulatory body is inconsistently applying its standards to Bitcoin and Ether futures ETFs. This inconsistency could be highlighted by the different treatments under the Securities Act of 1933 and the Investment Company Act of 1940.
Industry reactions and implications
The industry’s response to Grayscale’s strategy has been mixed. Seyffart, along with Scott Johnsson, General President at Van Buren Capital, speculate that Grayscale may not intend to launch the Ether futures ETF. Instead, they see it as a strategic tool to advance the approval process for the spot Ether ETF.
This development aligns with the recent delay by the SEC in its decision on Grayscale’s application, which was postponed to a date beyond the initially set deadline of November 17. Similarly, Hashdex’s application for converting its Bitcoin futures ETF into a spot product was also deferred by the SEC.
In a related observation, BlackRock, the world’s largest asset manager, echoed Seyffart’s sentiments last week. They argued that the SEC lacks a substantial basis for treating cryptocurrency spot and futures ETF applications differently.
Grayscale’s approach represents a pivotal moment in the ongoing dialogue between cryptocurrency entities and regulatory bodies. The outcome of this situation could set a precedent for how similar applications are handled in the future, potentially opening the door for more cryptocurrency-related products in the ETF space.
As the cryptocurrency market continues to mature and attract institutional interest, the decisions made by regulatory bodies like the SEC will play a crucial role in shaping the industry’s trajectory. The strategic moves by companies like Grayscale highlight the growing sophistication of cryptocurrency market players as they navigate the complex regulatory environment.
