Grayscale Investments is leveraging its Ether (ETH) futures exchange-traded fund (ETF) application as a strategic move to persuade the United States Securities and Exchange Commission (SEC) into approving its spot Ether ETF, suggested Bloomberg ETF analyst James Seyffart. Seyffart’s comments, made in a November 15 tweet, followed the SEC’s delay of Grayscale’s ETH futures ETF bid. He argued that if the SEC approves Grayscale’s application, it would allow Grayscale to advocate for the approval of its spot Ether ETF application.
Conversely, if the SEC denies Grayscale’s bid, it could potentially open the door for Grayscale to challenge the decision on the basis that the SEC is treating Bitcoin (BTC) and Ether futures ETFs differently by sanctioning one under the Securities Act of 1933 but not the other. Seyffart termed this a “genius move” and indicated that either scenario would put the SEC in a disadvantageous position in his opinion.
Grayscale’s Ether futures ETF bid was submitted via a 19b-4 form, which serves as a notification to the SEC of a security-based swap request. Seyffart noted that none of the approximately 40 approved Ether ETF products had undergone the 19b-4 approval process. Initially uncertain about the filing method, Seyffart now postulates that Grayscale is employing a deliberate strategy to use the Ether futures ETF as a “trojan horse” to acquire a 19b-4 order from the regulator to corner them into a lose-lose situation.
The consensus among industry analysts, including Scott Johnsson, general president at Van Buren Capital General, is that Grayscale does not intend to launch the Ether futures ETF, given the strategic objectives behind its filing. Johnsson commented that it’s doubtful the product will ever trade, but it serves as a strategic vessel to advance the approval for spot ETH.
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The SEC’s delay of the decision on Grayscale’s Ether futures ETF, which came two days earlier than its stipulated November 17 deadline, did not come as a surprise to Seyffart. Hashdex’s application to convert its Bitcoin futures ETF into a spot product was also put on hold by the SEC on the same day.
BlackRock, a major investment management company, echoed Seyffart’s sentiments by asserting that the SEC doesn’t have a valid basis to treat cryptocurrency spot and futures ETF applications differently. These moves indicate the increasing tension and strategic maneuvers in the ETF space as firms seek to gain regulatory approval for crypto-related financial products.
These developments underscore the complexities and challenges associated with navigating the regulatory landscape in the nascent crypto asset industry. Firms such as Grayscale and others are employing sophisticated strategies to influence regulatory decisions in their favor, underscoring the growing importance of regulatory approvals for institutional adoption and mainstream financial products within the crypto space.
The battle for ETF approvals is pivotal for the continued growth and evolution of crypto assets as legitimate and recognized investment products. As regulators continue to grapple with the unique characteristics of digital assets, players in the industry are leveraging legal and strategic maneuvers to pave the way for the mainstream adoption of crypto assets in established financial markets.
In conclusion, the ongoing developments in the ETF space demonstrate the maturation and integration of the crypto market within the traditional financial sector. Grayscale’s strategic filing of its Ether futures ETF bid is part of a broader effort to influence the SEC’s decision-making process and advance the prospect of mainstream crypto investment products. As the regulatory landscape continues to evolve, it is essential for market participants and regulators to engage in constructive dialogue to foster a balanced and informed approach to integrating digital assets into traditional financial markets.
