Byline: Hannah Parker
Photo by: Mariia Shalabaieva on Unsplash
The United States Security and Exchange Commission (SEC) for crypto-related exchange-traded funds (ETFs) have constantly risen in the number of applications submitted, and the regulator has yet to work on them. At least 16 Ether or Bitcoin-Ether futures ETF applications have been filed with the regulator, and all of them are expected to be approved simultaneously.
Experts from Bitcoin Decode mentioned that since July, the SEC had been flooded with applications from several investment firms combining futures Bitcoin (BTC) and Ether strategies. So far, the securities regulator has not instructed the firms to withdraw their applications, which bears a positive outlook for applicants.
Overview of the Matter
Currently, there are 16 applications for Ether or Bitcoin-Ether futures ETFs awaiting regulatory approval. Ether is the world’s second-largest cryptocurrency by market capitalisation and is the native token of the Ethereum blockchain, used for peer-peer transactions within a decentralised network and co-founded by Vatalik Buterin and others with a market capitalisation of $200 billion and a market dominance standing at 19%.
Crypto futures contract performance is tracked by crypto futures ETF. For instance, instead of investing directly in Ethereum or BTC, a crypto futures ETF invests in futures contracts tied to these digital assets’ prices. A Crypto Analyst at Bloomberg, James Seyffart, took to his social media page to post about some of the management fees by some firms in the list of Ethereum futures ETF. Seyffart posted, “Update: @roundhill disclose a 0.19% management fee for their Ethereum Futures ETF ($ETHX). This is very low compared to BTC futures ETFs like Proshares’ $BITO’s 0.95%. And is still drastically lower than VanEck’s $XBTF, which is at 0.76%. Fee war already starting in crypto ETFs”,
Responding to a tweet, Senior ETF Analyst for Bloomberg Eric Balchunas posted, “This is not surprising to us, we had said they would approve Ether Futures early on in the race. Nice to be validated. Now what does it mean for spot? Hard to say beyond it shows that their views, policy, and tolerance can change”.
Background
In 2021, the firms were instructed to withdraw their applications; it is clear that the SEC would not block the fund’s launch within its initial weeks. After submitting separate applications to the SEC, asset managers VanEck and ProShares applied and withdrew seemingly similar applications for Ether ETFs. The two firms mentioned not selling securities connected to the potential offering.
At the beginning of August 2021, SEC Chair Gary Gensler highlighted that he would be more open to accepting ETFs based on crypto futures rather than through direct exposure. It is important to note that a crypto futures ETF does not directly follow the price action of a digital asset and provides second-hand exposure to the asset to its holders. The SEC keeps receiving requests with the prospect of crypto futures approval looming.
As reported by BitcoinWisdom in August 2023, asset management firm Valkyrie confirmed that it had filed for an Ether futures ETF and a previous application combining a Bitcoin-Ether futures strategy and awaiting approval from the SEC. On August 16 2023, Valkyrie, an asset management firm, filed for an Ether ETF to bridge the gap between the traditional finance industry and the digital asset sector.
According to the filing, Valkyrie’s new Ether futures ETF will differ from a spot ETF. The financial services firm emphasised purchasing several ETH futures contracts and not directly investing in ETH. The document filed by Valkyrie stated, “Ether may be regarded as a currency or digital commodity depending on its specific use in particular transactions. Ether may be used as a medium of exchange or unit of account”. The document added, “Although a number of large and small retailers accept ether as a form of payment in the United States and foreign markets, there is relatively limited use of ether for commercial and retail payments. Similarly, ether may be used as a store of value, (…) although it has experienced significant periods of price volatility”.
While investing in Ether futures, the ETF will invest its remaining assets directly in cash, high-quality securities or cash-like instruments, including notes, bills and bonds issued by the US government, money market funds, and corporate debt securities. Valkyrie mentioned that the contracts would be limited to 8,000 monthly contracts in compliance with position limits established by the Chicago Mercantile Exchange (AME).
The asset management firm is the first in line in this race and could see its BTC-ETH ETF debuting in early October. According to the Wall Street Journal (WSJ), citing data from Morningstar, the first futures BTC ETF approved from ProShares has gathered $1 billion in assets since its inception in October 2021, while Valkyrie, which launched a similar product a few days later amassed nearly $28 million in assets.
Interestingly, the SEC has yet to decide whether to approve a spot Bitcoin ETF in the US. According to the application’s timeline, the SEC has until January 2024 to deliver a final verdict. Wall Street giants Fidelity and BlackRock are included in the list of players waiting for approval.
