In pursuit of approval to launch spot Ethereum exchange-traded funds (ETFs) in the United States, the leading asset manager Grayscale has filed official statements with the U.S. Securities and Exchange Commission (SEC). With Hong Kong spot ETH/BTC ETFs set to begin trading on 30 April 2024, the recent development reflects Grayscale’s efforts to bring the second-largest cryptocurrency by market cap into the U.S. regulatory periphery.
Should the SEC finally approve these requests, Grayscale would become the first issuer of spot Ether ETFs in the U.S. Moreover, this could be another basis for an ETH price rally. However, nothing is certain on this matter until the statutory deadline in May 2024.
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Proposed Grayscale spot Ethereum ETFs
Under the Securities Act of 1993, the Stamford-headquartered crypto asset manager filed a registration statement on Form S-3 to register shares of the Grayscale Ethereum Trust (ETHE) on Tuesday. By implication, the investment firm seeks to create another spot ETH ETF —dubbed Grayscale Ethereum Mini Trust (‘ETH’)— through a “spin-off and distribution” from the ETHE. “This is another important step toward uplisting ETHE as an ETF,” Grayscale wrote.
The ‘ETH’ exchange-traded product “is designed for investors interested in optimizing their Ethereum ETF investment for a buy and hold investment strategy in their brokerage or retirement account,” the update disclosed.
Alongside the Form S-3 registration statement for the proposed spot ETH ETFs, the company submitted an “Information Statement on Schedule 14C” for ETHE. As explained by Craig Salm, Grayscale’s Chief Legal Officer, the 14C describes the mechanics of how ETHE would seed the Grayscale Ethereum Mini Trust.
“In the case of ETHE and ETH, we call it a “spin-off” because a certain percentage (% allocation to be announced) of the Ether underlying ETHE shares would be utilized to ‘seed’ the new Grayscale Ethereum Mini Trust,” Salm elucidated. However, the launch of the Ethereum Mini Trust as well as the spin-off and distribution from ETHE are pending regulatory approvals.
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Related: BlackRock’s CEO Larry Fink advocates for Ethereum ETFs.
Timeline for SEC’s decision on spot Ethereum ETFs
Despite the approval of 11 spot bitcoin ETFs in January 2024, the U.S. SEC has remained tight-lipped on spot Ether ETFs despite pressure from asset managers and market participants. While the regulatory agency has approved no ETH ETFs at the time of writing, industry players remain optimistic as several leading asset managers continue to file requests.
Basically, registration statements and other regulatory requirements must be approved before spot ETH ETFs can be listed and traded on national exchanges in the United States. Speaking on the timeline for the SEC’s decision on this investment vehicle, Grayscale’s CLO revealed that the statutory deadline for the SEC to approve or deny its spot ETH ETF applications —Form 19b-4s— is late May 2024.
According to Salm, approving the listing exchange’s Form 19b-4 is the first step towards the launch of the proposed ETH ETFs. He added that the submitted Grayscale’s Form S-3 registration statement must be declared effective before ETHE can uplist to NYSE Arca as spot ETH ETF. Likewise, Grayscale’s Ethereum Mini Trust’s Form S-1 would need to be declared effective before it can be listed on NYSE Arca, he stated in the press release.
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Should the SEC give them a nod by late May 2024, Grayscale would launch the Ethereum Mini Trust as a lower-fee spot ETH ETF alongside the ETHE exchange-traded product. Commenting on why Grayscale intends to launch two spot ETFs that each hold Ether, Salm said: “We believe that ETHE’s characteristics, especially its liquidity and track record, deliver unmatched value to U.S. investors and capital market allocators who favour those characteristics. And we know that investors are not a monolith – investors have different needs based on their specific investing strategies.”
On the whole, Grayscale aims to build an Ethereum-based product suite that supports a broad range of investors. Recall that Grayscale Investments, LLC is among the 11 entities approved in January by the SEC to issue a spot BTC ETF. Dubbed Grayscale Bitcoin Trust ETF (GBTC), the fund holds over 302,600 BTC as of April 2024, equivalent to $19.4 billion at press time.
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