Grayscale Drops Ether Futures ETF Bid as SEC Stalls Approval

• Grayscale has withdrawn its Ether futures ETF application from the SEC.
• The SEC has stalled its decision-making process regarding Grayscale’s proposal.
• The commission has continued to delay its decision on spot Ether ETFs.

Over the past months, the fate of exchange-traded products tied to Ethereum , the second largest crypto asset by market capitalization, has been in the hands of the United States Securities and Exchange Commission (SEC) . While optimism was initially heightened for the regulator to build on its Bitcoin ETF momentum and roll out swift approvals, it has rather adopted a waiting game, keeping issuers and investors on their toes.

Following several months of uncertainty, one of the issuers is bowing out of the race.

Grayscale Opts Out of Ether Futures ETF Race

According to an SEC release dated May 7, asset management firm Grayscale has issued a notice of withdrawal for its 19b-4 application seeking approval to list and trade shares of the Grayscale Ethereum Futures Trust (ETH) ETF.

The withdrawal, filed on May 3, 2024, follows the SEC’s delay on the proposal on March 22, citing the need for additional time to consider the proposed rule change. Coming only days to the expected date of the commission’s next verdict on the proposal, the mystery of Grayscale’s decision has prompted speculation about its motives.

Weighing in, Bloomberg analyst Jam Seyffart opined that Grayscale’s “Trojan horse” pull of its Ether futures ETF application is likely aimed at replicating the past circumstances that preceded the approval of Bitcoin ETFs , in which the firm challenged the commission in a legal battle over the Grayscale Bitcoin Trust ($GBTC). In the previous instance, the firm sued the SEC for the rejection of its spot bitcoin ETF proposal before securing a legal win that forced the regulatory body to overturn its decision.

Seyffart further suggested that the decision was likely influenced by an unfavorable meeting with the SEC, echoing the prevailing sentiment regarding the commission’s approach to the proposals.

SEC Unwilling to Greenlight Ethereum ETFs?

The past weeks of wait have seen optimism for a potential Ethereum ETF wane, marked by the SEC’s rather lukewarm approach to nearly ten proposals filed. The sentiment is fueled by the lack of actions in the ongoing review process, such as those witnessed with the Bitcoin ETFs approval process.

According to analysts, the consistent pushback on proposal deadlines has left the prospects of approval for the proposed investment vehicle uncertain, lowering the chances of a spot approval from 25% to 25%.

Further diminishing hopes, VanEck CEO Jan VanEck has emphasized the unlikelihood of approval. In an interview on April 10, VanEck stated that the chances of a positive verdict for its application or others by the May 23 deadline are slim, citing the SEC’s inaction in recent months.

The recently reignited debate on Ethereum’s security status further threatens the likelihood of a greenlight. While some have argued the SEC’s lack of authority to reclassify the asset, others have asserted that the pursuit of a security label could mark the end of the proposed investment vehicle.

On the Flipside

• Grayscale is still in the race for spot Ethereum exchange-traded fund approval.
• In March 2024, BlackRock CEO Larry Fink expressed confidence in the potential approval of an Ethereum ETF despite the security debate.
• At press time, Ethereum is trading at $2,988, down approximately 4% in the last 24 hours.

Why This Matters

Grayscale’s withdrawal of its Ether futures ETFs adds confusion to the already uncertain fate surrounding Ethereum leveraged and spot ETF proposals.

Read here to better understand the SEC’s pursuit of a security label for Ethereum:
How Year-Long ETH Security Probe Paints SEC into a Corner

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