EtherFutures: SEC's Regulatory Gaze

The United States Securities and Exchange Commission (SEC), often referred to as the watchdog of financial markets, seems to be poised for a significant move. Recent reports from undisclosed insiders, as relayed by The Wall Street Journal, indicate a high probability that the SEC will give the nod to a cluster of applications for Exchange-Traded Funds (ETFs) tied to Ether futures.

This unfolding scenario has its origins in the month of July when a deluge of petitions inundated the SEC from diverse investment firms. These firms, in a bid to intertwine the trajectories of futures strategies for both Bitcoin (BTC) and Ether (ETH), which are symbolized by the tickers $26,134 and $1,670 respectively, sought the SEC's consideration. Intriguingly, unlike the situation in 2021, where similar appeals were met with directives to be withdrawn, the SEC has remained conspicuously silent in this case, choosing not to advise any firms to withdraw their applications. This circumstantial contrast leads to the inference that the SEC might be less inclined to impede the introduction of these ETFs in the coming weeks.

This current climate sees around 16 ETF applications in a state of limbo, all hinging on the regulatory nod for Ether or Bitcoin-Ether futures. Ether's role as the native coin for the Ethereum blockchain ecosystem, facilitating decentralized peer-to-peer transactions, gives these ETFs a distinct perspective. The novel concept of a cryptocurrency futures ETF traces the complex paths of crypto futures contracts. Rather than a direct investment in cryptocurrencies like Bitcoin or Ethereum, these ETFs find their roots in futures contracts that mirror the valuation of these digital assets.

UPDATE: Here's what the #Ethereum futures ETF filings race looks like. This is a list of all filings including withdrawn AND the 16 active filings. Notice @ValkyrieFunds' date on $BTF currently looks to be the leader absent some action from SEC -- 10/3/23 https://t.co/DgZpDVbEqO pic.twitter.com/CYEcTJnkx8

— James Seyffart (@JSeyff) August 16, 2023

As the anticipation of cryptocurrency futures approval looms large, the SEC's offices continue to receive a constant influx of requests. A recent entrant in this arena, Valkyrie, a player in asset management, has lodged an application for an Ether futures ETF, coupled with a prior plea that marries strategies for Bitcoin-Ether futures. Valkyrie takes the lead in this race and, if all goes as planned, could debut its BTC-ETH ETF in the earliest days of October.

In the realm of ETFs, the adage "first-mover advantage" holds considerable weight. Data from Morningstar, as cited by The Wall Street Journal, demonstrates this truth. The inaugural Bitcoin futures ETF approved by ProShares back in October 2021 has impressively pooled $1 billion in assets under management. In contrast, a similar offering from Valkyrie, introduced just a few days later, has gathered around $28 million in assets under management.

In a separate yet equally pivotal decision with far-reaching implications for the cryptocurrency domain, the SEC stands at a crossroads regarding the possible sanctioning of a Bitcoin ETF on U.S. soil. Awaiting the green light are notable industry heavyweights, the likes of Fidelity and BlackRock, synonymous with Wall Street's towering presence. As per the stipulated timeline in the application process, the SEC's ultimate decision is expected to emerge by January.