Ark Invest and 21Shares disclosed a significant update to their joint S-1 filing for an Ethereum-based Exchange Traded Fund (ETF) on February 7th.
According to the updated document, financial institutions that create or redeem ETF shares will now be limited to cash transactions only. This means they will be restricted to transactions that do not involve Ethereum.
The update specifically states:
“Authorized Participants will deliver only cash to create shares and will receive only cash when redeeming Shares. Further, Authorized Participants will not directly or indirectly purchase, hold, deliver, or receive ether as part of the creation or redemption process or otherwise direct the Trust or an Ether Counterparty.”
Cash transactions have played a crucial role in the approval of spot Bitcoin ETFs and a similar approach is expected for Ethereum-based ETFs. While the reasons for the U.S. Securities and Exchange Commission’s (SEC) insistence on this method are not clear, there have been reports of participants expressing difficulties with crypto transactions within the framework of U.S. regulations.
The Update Also Highlights the Possibility of Ethereum Staking
The updated filing also points to the ETF issuers’ plans to participate in Ethereum staking activities. Sponsored by 21Shares US LLC, it is expected that “Ethereum tokens from the cold wallet balance will be staked.”
The filing emphasizes that staking activities could generate rewards, which would be considered income, but also carries the risk of loss.
Staking is not presented as a definitive part of the offer. GP Scott Johnsson from Van Buren Capital notes that this section is unclear and placed in brackets. Bloomberg ETF analyst James Seyffart believes that the SEC will not permit staking.
Positive Developments on the Horizon for Ethereum ETFs
The changes made by Ark and 21Shares are seen as a positive step for Ethereum-based ETFs. The SEC recently extended the deadlines for Ethereum ETF applications from firms like BlackRock, Fidelity, Grayscale, and Invesco Galaxy. This situation could be interpreted as a sign of progress in light of today’s update.
However, the fact that the SEC must make a decision on an Ethereum ETF by May 23rd remains unchanged. The agency will be required to approve or reject VanEck‘s application on this date and will likely make decisions on other similar proposals as well.
Expectations for the approval of an Ethereum ETF are mixed. The Polymarket prediction market gives a 43% chance for a May approval. Seyffart believes the chances of approval are 60%, while an official from JP Morgan gives a 50% chance. Standard Chartered Bank expects an approval in May, whereas TD Cowen does not anticipate an approval until 2024.
While the impact of recent developments on investor sentiment is not clear, Ethereum (ETH) has gained slightly above the market average in the last 24 hours. ETH increased by 1.9%, compared to a general market rise of 1.5% and a 1.3% increase in Bitcoin (BTC).