Exchange-traded funds (ETFs) linked to the cryptocurrency ether will likely start trading in tandem with the speed at which issuers react to the U.S. Gary Gensler, the chair, responded to the Securities and Exchange Commission's questions on Wednesday. (Photo : by INA FASSBENDER/AFP via Getty Images)
Exchange-traded funds (ETFs) linked to the cryptocurrency ether will likely start trading in tandem with the speed at which issuers react to the U.S. Gary Gensler, the chair, responded to the Securities and Exchange Commission's questions on Wednesday.
Applications to list spot ether ETFs from Nasdaq, CBOE, and NYSE were authorized by the SEC last month. After disheartening discussions with the regulator, the bitcoin sector anticipated the SEC to reject the files, so their unexpected victory came as a surprise.
Before the ETF issuers can begin trading, the SEC must still approve their registration statements, which include investor disclosures. There is typically a lot of back and forth in this process between SEC representatives and ETF issuers.
On Wednesday, Gensler indicated that the SEC's decision to allow spot bitcoin ETFs in January was impacted by Grayscale Investments' legal challenge from the previous year.
Grayscale successfully claimed that since there is a strong correlation between the values of bitcoin futures and spot, the SEC should authorize spot bitcoin ETFs as well, given that it has already approved ETFs linked to bitcoin futures.
Since Ethereum futures have been trading since last year, according to Gensler, the scenarios are comparable. The Securities and Exchange Commission "looked at these (ether) filings, looked at the various correlations... the correlations are relatively similar to the correlations in the bitcoin space," said Gensler.
The SEC authorized spot bitcoin ETFs in January following the court's decision in Grayscale's favor last year. At the time, Gensler recognized the court's ruling in a statement and said that he believed certifying the items was "the most sustainable path forward."
The firm made its prediction by comparing the amount of open interest (OI) in futures contracts on the Chicago Mercantile Exchange (CME), the preferred marketplace for institutional investors, and the assets under management in currently available ETH-based exchange-traded products globally to comparable bitcoin (BTC) products.
Since ETH futures began trading on CME in 2021, Ether's OI has averaged 35% of BTC futures, demonstrating considerable institutional demand for ETH in the U.S., according to K33. Currently, Ether's OI on CME is 23% of the size of BTC futures.
K33 estimates that the ETH ETF inflows will range from $3 billion to $4.8 billion over the course of the first five months, based on the almost $14 billion in inflows that have already been made into the spot BTC ETFs. This estimate for this year is somewhat higher than JPMorgan's $3 billion projection.
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