SEC Defers Verdict on Grayscale's Ethereum Trust ETF, Requests Public Feedback

The Securities and Exchange Commission (SEC) has postponed its verdict on whether to approve Grayscale's application for an Ethereum exchange-traded fund (ETF) connected to the GBTC (Grayscale Bitcoin Trust). The proposed ETF, if approved, would track the spot price of Ethereum (ETH) in U.S. dollars.

The postponement follows the original filing for the ETF by NYSE Arca, Inc. on October 10, 2023. Grayscale's Ethereum Trust endeavors to mirror the actual value of the Ethereum it possesses, subtracting any expenses and liabilities. All of the trust's holdings are comprised exclusively of Ethereum and rights associated with the cryptocurrency.

Shares of the trust signify ownership fragments proportional to the aggregate number of shares in circulation. This structure would enable investors to gain exposure to Ethereum without needing to directly purchase and manage the cryptocurrency themselves.

Reasons for the Delay and SEC's Criteria

The SEC's choice to defer the decision is grounded in ongoing legal and policy debates pertaining to the rule change suggested by Grayscale. As part of its due diligence, the SEC is consulting the public to gauge opinion on whether the proposal is in accordance with the stipulations of the Securities Exchange Act of 1934. This critical piece of legislation seeks to safeguard against fraudulent and manipulative behavior, while also safeguarding the interests of investors and the general public.

Specific questions raised by the SEC for public inquiry include the suitability of the Grayscale ETF under existing NYSE Arca rules, the potential susceptibility of the trust and its shares to market manipulation, and the relationship between the spot pricing of Ethereum and the Ethereum futures market on the Chicago Mercantile Exchange (CME).

The SEC welcomes written remarks from the public regarding the proposed ETF’s adherence to the Securities Exchange Act. Comments can be submitted through the SEC’s online form, by emailing the commission, or by paper mail to its office in Washington, D.C.

Interested individuals have a 21-day window from the date of publication in the Federal Register to submit comments, followed by an additional 35-day period for rejoinders.

Public Participation and Future Expectations

Bloomberg analyst James Seyffart suggests that this delay may be one of several in the upcoming months concerning the approval of spot Ethereum ETFs. He marks May 23rd as the next significant date to observe in this ongoing process.

As the SEC solicits public input, industry participants and observers keenly await further developments that will likely shape the future of cryptocurrency-based investment products in the United States.

SEC, Grayscale, Ethereum