Hope Not Lost: Grayscale’s Ethereum ETF Bid Amid Skepticism

8 months ago 3

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Despite the regulatory uncertainty surrounding spot Ethereum exchange-traded fund (ETF), leading crypto asset management firm Grayscale’s quest for this investment product persists.

The firm amended its proposal to uplift its Ethereum Trust into a spot Ethereum ETF that would be listed and traded on NYSE Arca.

Grayscale Amends Ethereum ETF Filing

Grayscale argued that since the US Securities and Exchange Commission (SEC) already approved Ethereum futures ETFs, it should also sanction ETFs providing direct exposure to spot Ethereum.

The company asserted that the surveillance conducted by the Chicago Mercantile Exchange (CME) on the Ethereum market was sufficient to safeguard against fraud and manipulation. It further supported its argument by referencing Coinbase’s correlation analysis, demonstrating a strong market correlation between Ethereum’s spot and futures markets.

“Having approved ETH futures ETFs in part on the basis of such surveillance, the Commission has clearly determined that CME surveillance can detect spot-market fraud that would affect spot ETPs, and the Sponsor thus believes that it must also approve spot ETH ETPs on that basis,” Grayscale concluded.

Craig Salm, Grayscale’s Chief Legal Officer, highlighted the anticipated widespread interest in a spot Ethereum ETF.

“Investors want and deserve access to Ethereum in the form of a spot Ethereum ETF and we believe the case is just as strong as it was for spot Bitcoin ETFs,” Salm added.

Grayscale’s Ethereum Trust is the world’s largest investment fund, managing assets worth $11.8 billion, equivalent to 2.5% of all ETH in circulation. The planned transition to an ETF would unlock over $1.73 billion in value.

What Are the Chances of an Approval?

Grayscale’s modified filing coincided with diminishing hopes for regulatory clearance for an Ethereum ETF. BeInCrypto reported earlier this week, citing Polymarket’s prediction market, that the likelihood stood at 36%. Presently, the odds have slipped further to 26%.

This shift can be linked to a recent communique from two US senators urging the SEC to cease approval for additional crypto ETFs, citing potential risks to retail investors. They argue that cryptocurrencies such as Ethereum lack adequate trading volumes and integrity to sustain linked ETFs.

Furthermore, the senators cast doubt on the close correlation between futures markets for these assets and spot markets, posing challenges for market surveillance and fraud prevention.

Despite these dampened prospects, some industry experts remain optimistic. Matt Hougan, the chief investment officer at Bitwise, reportedly estimated a 75% chance of approval by May. On the other hand, Eric Balchunas, Bloomberg’s senior ETF analyst, opined that Grayscale’s latest amendment was a “ray of light in what has seemed like a bunch of bad signs.”

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