Discover Grayscale Investments’ innovative Ethereum Futures ETF Trust and Ethereum futures contract-based digital asset management.
The top digital asset management, Grayscale Investments, recently submitted paperwork to the US Securities and Exchange Commission (SEC) in order to launch a cutting-edge ETF that is only focused on Ethereum (ETH) futures. To be more precise, the Grayscale Ethereum Futures ETF Trust will buy and manage futures contracts relating to Ethereum for its holdings. Let’s examine every aspect down below.
Ethereum Futures ETF, a financial innovation from Grayscale, has the potential to shift the market
Anticipating the need, Grayscale has submitted a new Form 19b-4 application to the SEC seeking authorization to list an Ethereum futures-based Exchange-Traded Fund (ETF) on the NYSE Arca.
The digital asset management therefore wants to include Ethereum futures contracts in the ETF.
Two types of Ethereum-related futures contracts are offered on the CME trading platform: “ETH contracts,” which represent 50 ETH, and “MET contracts,” which represent 0.10 ether.
With the use of these contracts, investors can speculate on Ethereum’s future price changes without actually holding the cryptocurrency.
They enable investors to hedge their money or make predictions about changes in the price of Ethereum, much like conventional futures contracts. The goal of Grayscale’s proposed ETF is to have the closest expiration reflect the daily price fluctuations of the two types of ETH contracts.
Grayscale: the SEC’s filings and the court of appeals’ favorable decision
The following is also included in the Form 19b-4 filing:
“To open an open position in futures contracts, the trust will deposit a one-time margin payment. Similar to a cash fulfillment bond is a margin deposit. It facilitates the trader’s execution of the contracts for futures that they purchase or sell.
The D.C. Circuit Court recently ruled in favor of Grayscale, criticizing the securities regulator for turning down Grayscale’s application to establish an Exchange-Traded Fund (ETF) with a Bitcoin foundation.
In the wake of this decision, Grayscale’s legal team urged the Securities and Exchange Commission (SEC) to approve the company’s Bitcoin ETF as soon as possible.
The Chicago Mercantile Exchange (CME) is a regulated futures market, and Grayscale emphasizes this fact in its most recent filing with the SEC. It also underscores CME’s dedication to oversight, controls, and regulatory compliance.
It emphasizes in the filing how important these steps are to guaranteeing an equitable and open trading environment for its products, which include ETH and MET contracts.
Background: the SEC’s ongoing issues and Grayscale’s Bitcoin ETP approval
On August 29, 2023, the U.S. Court of Appeals, District of Columbia Circuit (Court) unanimously granted Grayscale’s request for a review of its Bitcoin Exchange Traded Product (Grayscale ETP) by the Securities Exchange Commission (SEC).
As a result, the Court overturned the SEC’s earlier rejection ruling. The SEC was specifically chastised by the Court for treating Grayscale’s ETP in a “arbitrary and capricious” manner and for handling almost comparable instances inconsistently by allowing Teucrium and Valkyrie Bitcoin futures ETPs at the same time.
In fact, the court noted that the spot market price exposure of Teucrium and Valkyrie’s ETP futures was almost exactly the same as Grayscale’s proposal.
Furthermore, these ETP pricing exchanges shared the same supervision sharing arrangements with the CME, the market place for bitcoin futures trading. Consequently, the Court found that Grayscale had proven, on the basis of pertinent regulatory circumstances, that its proposed bitcoin ETP was materially similar to bitcoin futures ETPs that had been approved.
Furthermore, the Court determined that Grayscale’s evidence directly addressed the SEC’s concerns, particularly the issue regarding Grayscale’s potential influence on the CME futures market.
The SEC had not provided a sufficient justification for its conclusion in light of the material that was given, the Court noted.
In its conclusion, the Court reiterated the legal need that administrative judgments be predictable and consistent, suggesting that situations that are similar should be handled similarly.
Given that the SEC had not offered a convincing justification for the disparities in treatment among the FTEs, the Court granted Grayscale’s petition for review and overturned the SEC’s previous ruling.
