ARK 21SHARES’ Latest Move On Spot Ethereum ETF Could Be ‘A Hail Mary’

May 11, 2024

The unfolding events surrounding ARK and 21Shares’ spot Ethereum ETF application have drawn attention, with one ETF analyst describing the recent development as a potential “Hail Mary” move.

This characterization reflects the significance and uncertainty surrounding the application’s progress in a regulatory landscape marked by complexities and evolving standards.

Strategic Shift in ETF Proposal

ARK 21SHARES filed an updated Ethereum Exchange-Traded Fund (ETF) S-1 form, marking a significant revision by eliminating the staking feature from its initial proposal and viewed as a strategic move to align with regulatory requirements. This decision underscores the company’s commitment to navigating the evolving landscape of cryptocurrency regulations while maintaining a forward-looking approach to offering innovative investment opportunities in the Ethereum ecosystem.

The latest filing by ARK 21Shares revealed a strategic shift in their Ethereum ETF proposal. Initially, it anticipated receiving ETH rewards from staking and planned to classify these earnings as income generated by the fund. 

However, its latest filing, submitted Friday, incorporates significant changes by removing the clause related to staking rewards. This alteration marks a departure from their earlier strategy, highlighting a nuanced approach to navigating the evolving regulatory landscape.

The updated filing also addresses broader considerations, including potential risks such as losses due to slashing penalties, temporary inaccessibility of funds during bonding and unbonding periods, and the potential impact of these factors on the price of Ether. Notably, the previous statement indicating that the “Sponsor may, from time to time, stake a portion of the Trust’s assets through one or more trusted Staking Providers” has been omitted from the revised proposal, signaling a recalibration of their operational approach.

Speculation and Analysis

Bloomberg ETF analyst Eric Balchunas, in an admission of lack of comments from the U.S. Securities and Exchange Commission (SEC), speculated that the changes are “prob either a Hail Mary or maybe trying to give SEC one less thing to use in their rejection,” adding “not sure (yet).”

Balchunas found the latest move from ARK 21 Shares “interesting,” noting that “while it may seem like this is them getting their docs in shape based on SEC comments (which would be good news) there hasn’t been any comments.”

In September 2023, ARK Invest and 21Shares submitted an application for a spot Ether ETF, seeking to offer investors direct exposure to Ether. Pending approval, the fund is slated to trade on the Cboe BZX Exchange, leveraging the CME CF Ether-Dollar Reference Rate – New York Variant as the basis for exchange valuation.

Optimism Amid Regulatory Uncertainty

Last month, JPMorgan expressed continued optimism regarding the Securities and Exchange Commission’s eventual approval of spot Ethereum ETFs, despite previously assigning no more than a 50% chance for approval by May, the initial deadline.

Nikolaos Panigirtzoglou, managing director and global market strategist at JPMorgan, shared his insights last month, stating, “If there is no spot Ethereum ETF approval in May, then we assume there is going to be a litigation process after May.”

He added, “we believe that the most likely scenario is that the SEC eventually loses this litigation (similar to what happened with the Grayscale and Ripple legal battles last year), which means that eventually, the SEC will approve spot Ethereum ETFs (but not as soon as this May).”

However, several analysts have tempered their optimism regarding the SEC’s potential approval of a spot Ether ETF by May. Bloomberg’s senior ETF analyst Balchunas recently adjusted his odds for May approval, now estimating a more pessimistic 25%, down from the previously assessed 70% in January.

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