Grayscale has made a significant regulatory filing amendment to convert its Ethereum Trust to a spot exchange-traded fund (ETF). The latest filing, released on March 15, strengthens their previous submission in various ways. One key point of the update is that it argues surveillance sharing within the CME ETH market is adequate to safeguard against fraud and manipulation in the spot ETH market. The amendment includes a correlation analysis conducted by Coinbase, which found a high and consistent correlation between the CME ETH futures market and the spot Ethereum market over the past three years. This correlation exceeds what the SEC found between the CME Bitcoin futures market and the spot Bitcoin market.
In addition to addressing market correlation, Grayscale’s amendment delves into the creation and redemption of ETF shares. Notably, the filing specifies that only cash creations and redemptions are allowed, with authorized participants unable to handle ETH directly. The Grayscale Ethereum Trust currently holds $11.8 billion in assets under management (AUM), a substantial increase from the previously reported $4.8 billion. This conversion to an ETF could unlock over $1.73 billion in value, surpassing the initial estimate of $1.6 billion.
Expected Broad Appeal of Ethereum ETFs
Craig Salm, the Chief Legal Officer at Grayscale, expressed optimism about the filing, highlighting the anticipated demand for spot Ethereum ETFs among investors. Salm emphasized that investors deserve access to Ethereum through a spot ETF, drawing parallels between the case for Ethereum ETFs and the successful introduction of spot Bitcoin ETFs in January. Market manipulation and concerns regarding creation and redemption methods were key stumbling blocks for spot Bitcoin ETF approvals, and Grayscale’s latest amendment effectively addresses these issues in the context of Ethereum ETFs.
Despite the positive amendments made by Grayscale, the outlook for regulatory approval of Ethereum ETFs remains uncertain. According to Polymarket, the likelihood of Ethereum ETF approval by the end of May stands at a mere 26% as of March 15. This indicates that despite Grayscale’s efforts to strengthen its filing and address regulatory concerns, the path to securing approval for an Ethereum ETF may still face significant obstacles.
Grayscale’s amended filing for the conversion of its Ethereum Trust to an ETF marks a significant step towards offering investors access to spot Ethereum ETFs. The inclusion of market correlation analysis, strict guidelines for creation and redemption, and the positive outlook on investor demand all contribute to the case for approving an Ethereum ETF. However, regulatory uncertainties and declining approval odds underscore the challenges that lie ahead for Grayscale and the broader cryptocurrency ETF landscape.
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