The SEC Delays Ether Spot ETF Collateral, "ETH Bull Run Thesis Evaporates," Earliest Rebound Possible in June
Original Article Title: "SEC Delays Ether Spot ETF Pledge, 'ETH Bullish Case Disappears,' Fastest Rebound Likely In June"
Original Article Author: 0xJigglypuff, from BlockTempo of Doo Wan Zone
The U.S. Securities and Exchange Commission (SEC) yesterday (14th) addressed multiple applications allowing cryptocurrency exchange-traded funds (ETFs) to conduct Ether (ETH) staking and in-kind creation and redemption rule change proposals. The SEC decided to delay in order to have more time for evaluation. Several decisions originally scheduled for mid-April have been postponed to early June this year.
Scope of Impact
SEC Assistant Secretary Sherry R. Haywood wrote in the VanEck Crypto ETF document. This indicates that the regulatory agency still maintains a high degree of caution regarding the innovative mechanisms involving cryptocurrency derivative financial products.
The commission believes that designating a longer period to take action on the proposed rule change is appropriate to have sufficient time to consider the rule change and the issues it raises.
Mainly affected are two Ether-related investment products under Grayscale: the Grayscale Ethereum Trust ETF and the Grayscale Ethereum Mini Trust ETF.
On February 14th this year, New York Securities Exchange Arca (NYSE Arca) submitted rule change applications for these two trusts, hoping to allow them to stake the Ether they hold, enabling investors to earn additional income. Originally expected on April 17th, the outcome is now postponed to June 1st.
The delay also affects the change submitted by the Chicago Options Exchange BZX (Cboe BZX) for the VanEck Bitcoin Trust (VanEck Bitcoin Trust, trading symbol HODL) and the VanEck Ethereum Trust, aiming to allow these two ETFs to adopt an "in-kind creation and redemption" mechanism. The SEC was originally expected to make a decision by April 19th, but this has been delayed to June 3rd.
Additionally, the decision regarding the physical issuance and redemption mechanism of the WisdomTree Bitcoin Fund has also been delayed until June 3.
Why is Staking and Physical Redemption Key?
“Staking” is a core feature of Proof-of-Stake (PoS) blockchains like Ethereum, where holders can lock up their tokens to validate blocks and receive rewards. If a Ethereum spot ETF can incorporate staking, it means that staking rewards can be distributed to investors, making an interest-bearing ETF very appealing to investors.
However, the introduction of staking has also brought about more complex regulatory issues, such as the nature of staking rewards, risk disclosure, ETF structure impacts, etc., and the SEC needs more time to carefully assess these.
“Physical issuance and redemption” is a common operating model in the ETF market, especially since the approval of the U.S. Bitcoin spot ETF earlier this year. This mechanism's importance has been further emphasized by the market. Compared to the prevalent cash create/redeem model, physical issuance and redemption allow Authorized Participants (APs) to directly exchange Bitcoin or Ethereum for ETF shares or vice versa.
This model is generally considered more efficient, with lower trading costs, reduced tracking error, and increased market competition. However, for volatile cryptocurrencies, the process of physical delivery, custody risks, and potential impact on market liquidity are aspects that the SEC must carefully consider.
Market Expectations for Ethereum Upside Disappointed
The market was initially highly anticipating an Ethereum spot ETF with staking functionality. However, even in the era of Trump, when faced with the complexities of cryptocurrency commodification, authorities have chosen to adopt a more cautious approach to uncertainty. Compared to the situation in January when multiple Bitcoin spot ETFs were approved, market expectations for an Ethereum spot ETF driving the market have significantly cooled off.
The main reason may lie in whether Ethereum's mechanism itself could be classified as a security and the complexity of staking and regulation brought about by the PoS mechanism.
Since the market's expectation for Ethereum to have staking functionality in early February, the price of Ethereum has halved. The initial optimism may have been mixed with the market's expectation of spot ETFs impacting market trends. The recent pessimism also reflects the disappointment of this expectation. To hope to return to the price and market trend of February, both spot ETF staking and Ethereum's reform are likely indispensable.
Compared to the uncertain regulation, Ethereum has recently undergone foundation reform and the Pectra upgrade. The upgrade is currently scheduled to go live on 5/7, with a possibility of being delayed again. However, overall, Ethereum may have to wait until close to June, or wait for changes in the overall economy, to show signs of a significant rebound.
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