In a recent development, Ark Invest and 21Shares have made amendments to their joint application for a spot Ethereum exchange-traded fund (ETF). This move aims to address certain concerns raised by the U.S. Securities and Exchange Commission (SEC) and pave the way for the potential approval of a spot Ethereum ETF. One of the key changes in their application pertains to the method of creation and redemption, which will now be limited to cash-based transactions instead of in-kind processes involving ETH. This article delves into the implications of this amendment and sheds light on the prospects of a spot Ethereum ETF.
One significant change highlighted in the amended application is the restriction on in-kind creations and redemptions involving ETH. Ark Invest and 21Shares state that authorized participants, who are allowed to purchase and redeem ETF shares, will only be able to transact in cash for the creation and redemption of shares. This divergence from the traditional in-kind process, which has been instrumental in the recent approvals of spot Bitcoin ETFs, raises questions about the SEC’s stance on handling cryptocurrencies within the current U.S. regulatory framework. While the exact reasoning behind the SEC’s emphasis on cash-based methods remains uncertain, this change could potentially alleviate concerns surrounding the custody and valuation of ETH.
The amended filing also indicates the intention of the ETF issuers to engage in Ethereum staking. It states that 21Shares US LLC, the sponsor of the ETF, anticipates staking ether tokens from the Trust’s Cold Vault Balance. While staking has the potential to generate rewards, the filing acknowledges the inherent risk associated with this activity. It is noteworthy that the mention of staking in the proposal is bracketed and uncertain, suggesting that its inclusion in the final ETF offering is not guaranteed. The possible incorporation of staking reflects the growing trend of investors seeking passive income opportunities within the Ethereum ecosystem.
The amendment made by Ark Invest and 21Shares is seen as a positive development in the journey towards securing approval for a spot Ethereum ETF. However, it is important to recognize that the SEC has set a deadline of May 23 for its decision on VanEck’s ETF proposal, which will likely influence the fate of other similar funds. Various experts and prediction markets offer mixed expectations regarding the approval of a spot Ethereum ETF. While one Polymarket prediction market gives a 43% chance of approval in May, Bloomberg ETF analyst James Seyffart places the odds at 60%. Conversely, a JP Morgan member sees a 50% probability, while Standard Chartered Bank favors an approval in May, and TD Cowen does not anticipate approval until 2024.
The recent news of amendments to the spot Ethereum ETF application has coincided with a slight uptick in Ethereum’s value. At the time of writing, Ethereum (ETH) has gained 2.07% over the past 24 hours, outpacing the overall crypto market’s 1.5% increase. With a market capitalization of $292.25 billion and a 24-hour trading volume of $9.42 billion, Ethereum continues to hold the second position by market cap. However, it is essential to highlight that the impact on investor sentiment resulting from this news remains uncertain.
The amended application by Ark Invest and 21Shares for a spot Ethereum ETF signifies a step forward in the quest for regulatory approval. The shift towards cash-based methods for creating and redeeming ETF shares aims to address concerns surrounding the handling of cryptocurrencies under existing U.S. regulations. Additionally, the intentions of ETF issuers to incorporate Ethereum staking into the offering highlight the rising popularity of passive income opportunities within the Ethereum ecosystem. As the SEC approaches its decision on VanEck’s proposal and simultaneously evaluates other similar funds, the landscape for a spot Ethereum ETF approval remains uncertain. Nonetheless, the recent amendment and its potential implications have generated renewed optimism among market participants, driving a modest increase in Ethereum’s market value.
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