Fidelity has recently updated its S-1 application with the United States Securities and Exchange Commission (SEC) for its spot Ether exchange-traded fund (ETF). This move reflects the changing landscape of the industry and regulatory nuances.
The updated application emphasizes that the underlying Ether tokens in the ETF will not be staked, in compliance with the SEC’s requirements for publicly traded securities products.
Changes in Regulatory Attitudes
The asset management giant has submitted an amended S-1 registration form to the SEC, stating that the Ether tokens supporting its proposed ETF will not be staked. This revision is timely, as there seems to be a shift in regulatory attitudes towards spot Ether ETFs in the United States.
Previously, the SEC appeared likely to reject such applications, as seen in regulatory filings, public statements from SEC Chair Gary Gensler, and ongoing investigations. However, recent developments indicate a potential change in this stance. Bloomberg analysts James Seyffart and Eric Balchunas have revised their approval probabilities for a spot Ether ETF from 25% to an optimistic 75%.
According to these analysts, this shift is due to the ETF becoming a contentious political issue, a sentiment echoed by industry sources. Seyffart expressed concern about the political implications of the SEC’s evolving approach, suggesting significant discussions and possibly a wave of filings in the coming days. He acknowledged the high stakes involved, especially considering the vigilant Ether community closely monitoring these developments.
Pending Decision for VanEck’s Spot Ether ETF
The SEC’s decision-making process is in the spotlight, with a looming deadline for VanEck’s spot Ether ETF set for May 23. This application is among the first in a series being considered, with other major financial entities like ARK 21Shares, Hashdex, Invesco Galaxy, BlackRock, and Fidelity also awaiting outcomes. The SEC has utilized its full regulatory timeline for VanEck’s application, indicating a thorough review process.
In parallel with these developments, the classification of staked Ether remains a contentious topic. The SEC has previously suggested that cryptocurrencies allowing staking could meet the criteria of securities under the Howey test.
This perspective was supported by Gensler’s statements during a 2022 Senate Banking Committee hearing, as reported by The Wall Street Journal. The transition of Ethereum to a proof-of-stake (PoS) model adds complexity to this debate, potentially influencing the SEC’s regulatory approach.
Legislative Actions and the Wider Regulatory Landscape
Despite a potential easing of approval for Ether ETFs, the distinction between Ether and staked Ether remains significant. Alex Thorn, head of research at Galaxy Research, speculates that the SEC may differentiate between non-staked ETH and staked ETH or “staking as a service” models, treating the latter as securities. This nuanced view suggests that the SEC is navigating through complex regulatory and technical landscapes.
In Fidelity’s initial filing for the ETF on March 27, it proposed staking a portion of the ETH holdings while acknowledging the associated risks, such as potential fund losses through slashing penalties and liquidity issues. It also recognized the tax implications of staking rewards, which would be considered income for the fund, resulting in taxable events for investors without direct distributions.
The evolving regulatory framework and Fidelity’s strategic adjustments in its ETF proposal highlight the delicate balance between innovation, investor protection, and regulatory compliance in the rapidly growing cryptocurrency sector. As the deadline approaches, the industry eagerly awaits the SEC’s decisions, which could set significant precedents for the future of cryptocurrency investments and the broader financial landscape.
