Spot Ether ETFs Spark Global Excitement Amid Regulatory Divergence

April 26, 2024

Over the last few weeks and months, Ether ETFs have dominated headlines, oscillating between hopeful anticipation and regulatory uncertainty in various jurisdictions.

Hong Kong has become the first major financial hub to approve the launch of spot Bitcoin and Ether exchange-traded funds (ETFs), while U.S. regulators continue to express skepticism. The Securities and Futures Commission (SFC) of Hong Kong announced the official approval of the first batch of spot Bitcoin and Ether ETFs, which will start trading on April 30.

Unlike the cash-creation model of U.S. spot Bitcoin ETFs, Hong Kong aims to offer in-kind creation models for ETFs that enable the creation of new ETF shares by leveraging BTC and ETH. Hong Kong’s in-kind ETF creation model could be a significant opportunity to considerably increase assets under management (AUM) and trading volume for these products.

Meanwhile, U.S. issuers and other firms expect the Securities and Exchange Commission (SEC) to deny their applications to launch exchange-traded funds (ETFs) tied to the price of ether after discouraging meetings with the agency in recent weeks. The SEC has rejected spot bitcoin ETFs for more than a decade over market manipulation worries but was forced to approve them after Grayscale Investments won a court challenge.

The SEC’s skepticism toward spot ether ETFs has been reflected in ether’s price, with the cryptocurrency struggling to keep pace with bitcoin’s price gains. The SEC has held just a handful of meetings on the ether products so far, with the only disclosed meeting being last month with crypto exchange Coinbase.

VanEck, ARK Investment Management, and other firms have submitted ETF filings that track the spot price of Ether, with decisions due by May 23 and May 24. The regulatory outlook still remains uncertain, with expectations of approval delays extending potentially into 2024 or beyond.

The SEC’s rejection of ether ETFs could invite another lawsuit, with some saying that it’s entirely possible that ether ETFs will eventually be approved, but not until somebody is denied and goes to the courts. In summary, while Hong Kong takes the lead in spot Ether ETFs, U.S. regulators remain skeptical, leaving issuers and investors in the United States waiting for a more favorable regulatory environment.

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