SEC’s Pivotal Decision on Spot Ether ETFs: A Political Move?

The Securities and Exchange Commission (SEC) appears to be at a pivotal moment, as it hints at a potential approval of spot ether exchange-traded funds (ETFs), signaling a notable shift from its previous stance. Just two weeks ago, the SEC expressed disinterest in these filings, but recent developments suggest a complete reversal. According to sources, the SEC’s division of trading and markets informed exchanges on Monday about approving 19b-4 applications this week, a move reported by Barron’s as a leaning towards approval.

This sudden change has sparked speculation about the motives behind the decision, with some insiders suggesting political influence. “It is a completely unprecedented situation, which means it’s entirely political,” one source remarked. The timing is critical as elections loom, and former President Donald Trump has recently expressed pro-crypto sentiments, contrasting President Joe Biden’s perceived lack of familiarity with cryptocurrency. This has led to suggestions that the SEC’s decision could be politically motivated to gain favor with younger voters.

Internally, the SEC seems to be facing coordination challenges. The division responsible for approving 19b-4s is not aligned with the division handling S-1s, leading to further speculation about the hurried nature of these approvals. “They’re not even internally coordinated yet, which is why this is most likely a political decision,” another source stated.

Amidst this backdrop, the SEC is under pressure to update 19b-4 forms after receiving comments, with tight deadlines leading to what some describe as minimal feedback, likened to “writing the term paper the night before.”

Despite the sudden pivot, not everyone is convinced that the SEC has changed its stance specifically for spot ether ETFs. Nathan Geraci, president of The ETF Store, suggests that the SEC’s approval of ether futures ETFs in October 2023 might have set the stage for an eventual approval of spot ether ETFs. “Once the SEC approved ether futures ETFs, that likely sealed the fate of an approval outcome for spot ether ETFs,” Geraci noted, adding that the SEC likely learned from the contentious approval process for spot bitcoin ETFs and chose a quieter approach for ether.

The SEC’s actions suggest a strategic, albeit last-minute, engagement with exchanges and issuers, leveraging previous experiences with spot bitcoin ETFs to streamline the current process. This includes decisions on whether the redemption model would be cash or in-kind, which were significant considerations previously ironed out.

As the SEC navigates these politically charged waters, the outcome of these approvals could have significant implications for the cryptocurrency market and the broader political landscape, especially as the U.S. heads into an election cycle.