SEC Delays Spot Ether ETF Applications From BlackRock and Fidelity

Many analysts estimate a 50% chance of the funds receiving regulatory approval by the end of May.

By: Samuel Haig Loading...

SEC Delays Spot Ether ETF Applications From BlackRock and Fidelity

The U.S. Securities and Exchange Commission has delayed the deadline for its verdict on the pending spot Ether ETF applications from BlackRock and Fidelity, the asset issuers behind the two largest spot Bitcoin funds.

The SEC pushed back both BlackRock’s and Fidelity’s applications in separate March 4 filings, requesting further feedback regarding the risk associated with Ethereum’s Proof of Stake mechanism.

The SEC questioned whether the consensus system makes Ether vulnerable to a “concentration of control or influence by a few individual entities,” potentially raising “unique concerns about Ether’s susceptibility to fraud and manipulation.”

However, the SEC also notes a high degree of correlation between the spot Ether markets and Chicago Mercantile Exchange’s (CME) Ether futures ETF at 99.93%. CME said that any prospective market manipulators would need to trade its future ETF and increase the likelihood of detection through its surveillance-sharing agreements with the Intermarket Surveillance Group.

The SEC's delay initiates an additional 21-day window for public commentary and up to 35 days for follow-up rebuttal. The SEC previously delayed both ETF applications on Jan. 24.

Analysts debate Ether ETFs’ chances

The SEC’s filings come amid increasing speculation that Ether may be the second cryptocurrency traded by a spot exchange-traded fund after the Jan. 10 debut of 10 spot Bitcoin funds.

At the time, Eric Balchunas, a senior ETF analyst at Bloomberg, estimated there is a 70% chance the Ether ETF applications will also receive regulatory approval in May. However, Balchunas’s confidence appears to have receded since, describing the Ether ETF applications as “small potatoes” and likening them to an “opening act coming on after the headliner” in a March 2 tweet.

Representatives from Bitwise Asset Management, Galaxy Asset Management, and Grayscale all agreed that there is a 50% chance of the funds receiving approval during a Feb. 13 panel, lining up with predictions from JP Morgan and Bernstein Trading.

However, other analysts are skeptical that a spot Ether ETF will soon enter the markets. On March 1, Jake Chervinsky, a crypto-focused lawyer, tweeted that the recent surge in bullish momentum surrounding BTC and other digital assets could undermine the likelihood that the SEC will greenlight the prospective Ether funds this year.

“The SEC got a ton of political blowback for approving BTC ETFs, even though the court basically forced it to,” Chervinsky said. “Now, animal spirits are in control of the market, and an ETH ETF would only add to that.”

Bullish market dynamics

The performance of spot Bitcoin ETFs has surpassed most expectations after trading for two months, with four of the funds already ranking among the top 11 spot commodity exchange-traded funds by assets under management.

The ETFs were accumulating BTC at a rate exceeding new Bitcoin issuance by more than 1,000% on Feb. 27, and then again on Feb. 28 amid record inflows of $637 million Despite the funds posting an outflow of $139.5 million on Feb. 29, $562.7 million entered spot Bitcoin ETFs on March 4 as BTC rallied to new all-time highs, according to Sosovalue.

Strong inflows to spot Ether ETFs could have an even greater impact on the supply dynamic of Ethereum, with ETH already trending deflationary due to its burn mechanism coupled with high transaction fees and competition for block space.

Ether’s supply fell by more than 59,200 ETH ($224.5 million) over the past 30 days, equating to an annual negative supply growth of 0.6%, according to Ultra Sound Money.

ETH last changed hands for $3,793 after rallying 7% in the past 24 hours, according to CoinGecko.