Euphoria is sweeping through cryptocurrency markets amid growing optimism that regulators will approve exchange-traded funds that invest directly in ether, marking a sharp reversal in sentiment.
The change in tune comes amid a flurry of activity among potential issuers of the funds, the stock exchanges where they would trade and the U.S. Securities and Exchange Commission.
The SEC requested that the New York Stock Exchange and Cboe Global Markets update so-called 19b-4 filings that propose rule changes to allow the funds to trade on the exchanges, according to people familiar with the matter who asked not to be identified since the matter is private. That's a sign that prospects for SEC approval may be rising, one of the people said. Still, a green light is by no means guaranteed, the person added. The U.S. regulator sought a so-called universal comment, meaning all filings be resubmitted using the same language, one of the people said.
READ MORE:
Meanwhile, Fidelity Investments on Tuesday updated its S-1 registration statement with the SEC for its proposed spot-ether ETF. Among other things, the issuer said it will keep the ether it buys out of programs that pay rewards for blockchain maintenance — known as staking in the industry's jargon — and that it will not invest in derivatives. Staking has been a hot-button issue for ether since it raises question about whether the token should be treated as a security.
The increased activity among the SEC, investment firms and exchanges comes before a May 23 deadline for the regulator to approve or deny one application from VanEck.
"Given the political 'backroom' drama, approval will be seen as significant regulatory relief for the sector," Bernstein analysts Gautam Chhugani and Mahika Sapra wrote in a note on Tuesday. "And ahead of U.S. presidential elections, we would expect a softer regime."
Ether is the native token of the ethereum blockchain, the most important commercial highway in crypto. The token has surged as much as 25% over the past two days, and was trading at about $3,800 as of 11 a.m. in New York
"We expect significant ETF-driven inflows to ETH, as has been the case with BTC ETFs since their approval," Standard Chartered analyst Geoff Kendrick wrote in a recent note. Kendrick estimated that the spot-ether ETFs can lead to inflows of about $15 billion to $45 billion in the first 12 months after approval.
In January, the SEC faced a similar deadline for spot-bitcoin ETFs and ended up approving 10 of the funds simultaneously. Those approvals were also preceded by a flurry of paperwork amendments requested by the regulator. A lack of similarly robust interaction with the regulator prior to Monday had led some issuers to brace for rejections, Bloomberg reported on May 17.
The batch of new U.S. bitcoin ETFs have attracted almost $13 billion in net inflows to amass nearly $59 billion in assets since their launch on Jan. 11, and they have been hailed as one of the best product category debuts in the industry's history. On April 30, bitcoin and ether spot ETFs also started trading in Hong Kong and are currently managing $294 million in assets.
READ MORE:
Another sign that speculation of approval is growing can be seen in the Grayscale Ethereum Trust, which Grayscale Investments hopes to convert to an ETF if the SEC approves. The fund (ticker ETHE) ended Monday trading at a roughly 12% discount to its underlying ether holdings, a sharp improvement from Friday's 20.5% discount and a significant reduction from 53% a year ago, data compiled by Bloomberg show. A similar pattern was seen in January before the SEC approved the conversion of Grayscale's Bitcoin Trust, which is now trading on par with its underlying asset.
Ether prices began to take off on Monday after Bloomberg Intelligence ETF analyst Eric Balchunas increased his estimated probability of the ETF being approved by May 23 from 25% to 75%.
An SEC spokesperson said the agency doesn't comment on individual filings. Spokespeople for NYSE, Nasdaq and Cboe declined to comment. Grayscale did not immediately return a request for comment.
