SEC reviews Ethereum futures ETF applications

Four new applications pertaining to Ethereum futures ETFs must be evaluated by the SEC. Henry Jim, a Bloomberg Intelligence analyst, disclosed this.

ETFs for futures on ETH

It is not at all surprising that someone would now like to issue ETFs based on futures contracts on the price of Ethereum on US exchanges given that the SEC has long since approved ETFs based on futures contracts on the price of Bitcoin.

In addition to the earlier Volatility Shares project, these four companies—VanEck, ProShares, Bitwise, and Roundhill—are well known for these types of financial derivatives.

The arrival of these four applications to the SEC virtually simultaneously in the previous few days is curious.

The SEC publicly stated its openness to explore related products after Volatility Shares submitted its application last week, which appears to be the reason.

In other words, even though it hasn’t been examined or approved yet, the agency’s acceptance of Volatility Shares’ application would seem to be good, and this has set the stage for further projects of a similar nature.

Instead, it had advised businesses that intended to take a similar route to leave it alone in May.

It is important to note that despite the fact that these kinds of projects likely have more long-term objectives than medium- or short-term ones, ETFs based on BTC futures have yet to be a smashing success in traditional financial markets.

Furthermore, Henry Jim predicted that exchange traded fund (ETF) companies would exhibit a certain FOMO (Fear Of Missing Out) in order to be among the first to provide traditional markets derivatives on the price of ETH.

Inconsistency of the SEC beyond Ethereum ETFs

Given all of this, many people are criticizing the SEC of acting inconsistently.

It is important to remember that an organization with the sole purpose of enforcing regulations shouldn’t act inconsistently. This is because it should treat everyone equally and, more importantly, because the legislation themselves should always be read consistently.

On the other hand, the decision clearing XRP of the accusation of being a security likely cleared ETH as well. On the one hand, it is not yet established that the SEC has altered its opinion concerning ETH futures-based ETFs.

To put it another way, something changed in July, and all the SEC may have done was notice the change and act in accordance by removing any remaining uncertainties regarding Ethereum’s purported status as an unregistered security.

Further, despite the fact that its current chairman had recognized it, the agency itself had never officially said that it thought of ETH as a security. In other words, it is feasible to assume that things were still uncertain from this point of view up until mid-July, just as it is possible to assume that they are no longer uncertain.

Bitcoin ETFs

It appears that this inconsistency extends beyond the shifting perception of petitions to construct ETFs on ETH futures.

Fair enough, the SEC did not raise a fuss when the first ETFs based on Bitcoin price futures contracts were approved, but it has consistently refused to authorize ETFs based on spot Bitcoin, that is, EXACTLY collateralized in BTC rather than in BTC price futures contracts.

This is a little different matter, though, as the SEC does not consider this to be inconsistent.

The agency has actually consistently asserted that these are two distinct financial products that are regulated in different ways. In this instance, the law itself—which requires two very identical financial instruments to be considered as different—would be inconsistent, not the SEC’s approach, which would be to simply apply the law as stated.

In truth, spot Bitcoin ETFs have long been permitted in other countries like Canada, where the legislation does not distinguish between these two categories of financial products.

Future progress

There are two questions at this time.

The first is whether or if, after perhaps changing its mind, the SEC will now also authorize ETFs on ETH futures.

The second is if those based on spot BTC, like the one provided by BlackRock, will eventually be approved as well.

Although to date it appears more likely that approval will occur than rejection in both circumstances, the affirmative response is by no means a given.

The most pertinent query is, however, how these conventional financial instruments will affect cryptocurrency markets in the long run.

Given the limited knowledge we currently have, it is still quite challenging to provide an answer; nonetheless, it is at least conceivable that over time, they may even grow to have some important effects.

What is already clear is that traditional markets appear to be interested in making investments in or making bets on the prices of key cryptocurrencies, possibly even using conventional derivative financial products that they are now largely accustomed to utilizing.