Spot Ethereum ETF Rule 19b-4s approved but S-1 documents could take weeks
The SEC just approved Rule 19b-4 of the spot Ethereum ETF less than half a year after approving the spot Bitcoin ETF.
- The SEC approved the Rule 19b-4s for the spot Ethereum ETF but has yet to approve the S-1 document filings, which could take weeks.
- Since Ethereum itself is classified as decentralized, it falls under the CFTC regulations, not the SEC.
The spot Ethereum ETF has finally been approved after massive public and even political push for the SEC‘s’ green light. Leading to its approval, several Members of Congress sent a letter to the SEC, urging Gary Gensler to approve the ETF.
Initially, these were the three possible outcomes:
- 19b-4s & S-1 filings are both approved → ETH ETF launch approved
- 19b-4s are denied → ETH ETF launch is not approved
- 19b-4s are approved but S-1 filings are delayed → ETH ETF launch is delayed
The SEC chose went with number three, meaning the spot ETH ETF launch would be delayed.
Form 19b-4 is used by covered self-regulatory organizations (SROs) to record a rule change with the SEC. Form S-1 is an initial registration for when a company first goes public.
The SEC approved 19b-4s for the following:
- BlackRock
- Fidelity
- Grayscale
- Bitwise
- VanEck
- Ark
- Invesco Galaxy
- Franklin Templeton
Shortly before the decision was made, the SEC had one final request, asking filing participants to file an S-1 registration statement. One major discussion around the approval of the spot Ether ETF was as to whether it was a security.
Gensler’s recent statement, which said Ethereum was a security, contradicted previous definitions of it as a commodity.
An important point of discussion is the approval of staking, since it would complicate the SEC’s governance. Recently, Fidelity decided to amend its spot Ethereum ETF filing, saying the trust’s Ether won’t be staked.
Others, like Blackrock, have excluded staking from their application. Valkyrie CIO Steve McClurg said the ETH spot ETF was delayed because the SEC needing to understand the complexity of staking.
News of the approval was broken by PheonixNews, which was vouched for by Bloomberg’s James Seyffart.
Ethereum is now classified as a commodity
Under the recently approved FIT21, commodities would fall under the regulatory rules of the CFTC, not the SEC. The ruling specifically outlines how decentralized digital assets would be under the regulations of the CFTC, while centralized assets would be under those of the SEC.
Coinbase Chief Legal Officer Paul Grewal highlighted how there were several mentions of “Commodity-Based Trust,” breaking the news that Ethereum was finally considered a commodity. The exchange is a trusted partner and custodian for many of the issuers.
How staking possibly complicated the SEC’s decision
Due to staking involving locking up tokens to earn rewards for supporting the network’s operations, the SEC might have seen this as an investment contract under the Howey Test. If the SEC sees staking as an investment contract, it will then categorize it as a security.
However, then-Director of the SEC’s Corporate Finance Division, William Hinman, said the following in June 2018:
Based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.
It’s important to note that during this time, Ethereum was still proof-or-work. It only shifted to proof-of-stake on September 15, 2022.
With the recent passing of FIT21, Ethereum was considered decentralized and not under the regulatory reach of the SEC. Although under the CFTC, Ethereum and staked Ethereum could be differentiated.
- Ethereum — a decentralized blockchain
- Staked Ethereum — could be an investment contract
Due to an expected return and its complexity, filers have decided to strip the staking option from their filing. However, some argued that this would make the spot Ethereum ETF less attractive to buyers.
Our recent poll found a slight majority thinking that the spot Ether ETF would be less attractive. Despite several people being disappointed, BitOoda’s Vivek Raman said it was actually a good thing for ETH, saying if ETH ETFs could stake:
- Staking yield will be diluted
- Solo staking would become less attractive
- ETH staking would centralize
Hong Kong’s SFC is also reportedly talking about adding staking as an option for its spot ETH ETF issuers.
Expected effects of the approval
Multiple analysts have released their price predictions for Ethereum should the ETF have been approved, like Nexo’s head, Andrey Stoychev, who told Cointelegraph he believes Ethereum would reach $10,000 by the end of 2024.
For reference, the spot Bitcoin ETF rose from $42,000 to $73,000 just two weeks after its approval.
While some analysts expect the price of Ethereum to surge, Bitcoin maximalist and CEO of Jan3 Samson Mow believes it will underperform Bitcoin ETFs. It’s important to note that only Form 19b-4 was approved and it could still take a while before the official launch of the spot Ethereum ETFs.
