On May 23, 2024, the SEC approved listing of eight ETH ETPs. The order approved the applications to list the ARK 21Shares Ethereum ETF, the Fidelity Ethereum Fund, the Grayscale Ethereum Trust, the Bitwise Ethereum ETF, the iShares Ethereum Trust, the Invesco Galaxy Ethereum ETF, the Franklin Ethereum ETF.

The approvals are a stunning turnaround from what had been industry consensus (that the SEC was going to deny the applications to list funds of VanEck and 21Shares) just a few days earlier. By some accounts, the SEC dropped the news on the applying exchanges and the issuers less than a week before approval of the applications, leaving everyone to frantically file necessary amendments to meet the SEC’s deadline; giving exchanges and issuers that little time to file amendments is quite unusual.

Actual listing and trading of these ETPs will not happen for some time, because none of the registration statements are ready to be declared effective. Still, the news represents a big step for crypto in the United States.

LEGAL TOKENS

Here are two thoughts related to the ETH ETP approval that may have gotten lost in the news shuffle about the SEC’s quick turnaround.

1. ETH is not a security. While most practitioners had reached a very high level of confidence that this was so based on prior staff statements, Chairman Gensler had refused to answer any questions about this in the affirmative. But the approval of the ETH ETPs as companies under the Securities Act of 1933 rather than investment companies under the Investment Company Act of 1940 means that ETH is definitively not a security. If ETH were a security in the staff’s view, the ETPs would have had to register as investment companies..

2. The ETPs are not permitted to stake their ETH. The approved ETH ETPs which had previously disclosed in their applications that they intended to stake ETH all removed the relevant language prior to approval. Thus, none of the ETH ETPS that received approval yesterday may stake the ETH they hold. If they had, it might have (a) implied that the SEC reached a certain level of comfort with staking without necessarily answering whether or what kind of staking activity involves a security, or whether staked ETH could be considered a security, and (b) provided a large pool of ETH that could have been staked.

Saying that the ETH ETP approval was a momentous step is in our mind accurate. Throw in passage of the FIT 21 Act in the House (even though the Senate has yet to consider it and it may not ultimately provide a definitive solution to the regulatory questions vexing crypto in the U.S.) and the repeal of the SEC’s SAB 121 guidance (even though it may get vetoed by the White House), and these last two weeks are definitely two weeks to remember.