US SEC Initiates Proceedings On Grayscale’s Spot Ethereum ETF, Extends Decision Deadline

In a significant development for the cryptocurrency market, the United States Securities and Exchange Commission (SEC) has initiated proceedings on Grayscale Investments’ application for a spot Ethereum ETF and extended the decision deadline.

Review Period For Grayscale’s Ethereum ETF

Grayscale’s application, filed with the SEC on October 10, 2023, sought approval for listing and trading shares of the Grayscale Ether Trust on the New York Stock Exchange (NYSE) Arca under the Commodity-Based Trust Shares rule. 

The proposed rule change was published for public comment in the Federal Register on October 27. In response, the SEC provided an extended period to approve, disapprove, or institute proceedings on the proposed rule change, similar to the Commission’s steps before approving the Bitcoin Spot Exchange Traded Funds on January 11.

With the initiation of proceedings, the SEC stated that it would “thoroughly” analyze whether to approve or disapprove the proposed rule change. The Commission’s decision to institute proceedings does not indicate any preconceived conclusions.

Instead, it reflects the need for further examination of the legal and policy issues associated with the Ethereum ETF application.

The SEC specifically highlights the need to consider the proposed rule change’s consistency with Section 6(b)(5) of the Securities Exchange Act of 1934, which requires national securities exchange rules to prevent fraudulent and manipulative acts, protect investors, and serve the public interest. 

Interested parties are encouraged to provide comments addressing the sufficiency of the Exchange’s statements supporting the proposal and any other concerns related to the proposed rule change.

SEC Requests Feedback 

The Commission poses several questions for commenters to address, including the appropriateness of listing and trading the shares under NYSE Arca Rule 8.201-E, given the nature of the underlying assets held by the Trust. 

The SEC also references the Exchange’s arguments for listing and trading spot Bitcoin exchange-traded products (ETPs), seeking additional input.

Interested individuals and organizations of Ethereum ETF applications are invited to submit written data, views, and arguments concerning the proposed rule change’s consistency with the Act and its regulations. Although oral presentations are not deemed necessary at this stage, the Commission will consider requests for such presentations.

In light of the recent approval of 11 Bitcoin spot exchange-traded funds, the Commission’s future actions regarding the approval of Ethereum ETF applications remain uncertain. 

It is also worth considering the classification of Ethereum as a “security” by the SEC and how this classification might impact the decision-making process of the 12 Ethereum ETF applications. It is important to note that the SEC views Bitcoin as the sole commodity within the cryptocurrency market.

In line with Bitcoin’s trajectory, Ethereum (ETH) has undergone a significant correction, witnessing a decline of over 14% in the last 14 days and 11% in the past seven days. As a result, its current price stands at $2,217.

Featured image from Shutterstock, chart from TradingView.com