SEC approves rule change to allow creation of ether ETFs

The SEC approved a rule change that would pave the way for ETFs that buy and hold ether, one of the world's largest cryptocurrencies.

The decision comes less than six months after the SEC approved bitcoin ETFs. Those funds have proven to be a big success for the industry, with net inflows already surpassing $12 billion, according to FactSet.

Late May had long been pegged as a potential decision date for the ether funds since it coincided with a deadline for the SEC to decide whether the VanEck Ethereum ETF could proceed.

Many of the companies that sponsor bitcoin ETFs — including BlackRock, Bitwise and Galaxy Digital — have also started the process of the launching an ether fund. The SEC's rule change approval does not guarantee that all the funds will launch.

Ether ETFs are expected to be smaller, at least initially, than their bitcoin counterparts. The Grayscale Ethereum Trust currently has about $11 billion in assets, much smaller than what the firm's bitcoin fund was before its conversion.

The approval of the ether ETFs is a sign that the SEC's stance toward crypto may be softening after a series of legal fights. The agency lost a lawsuit against Grayscale in 2023 that spurred the approval for the bitcoin products.

The SEC's push to regulate crypto has also come under scrutiny by politicians. The Senate last week passed a resolution to withdraw an SEC staff bulletin about accounting rules for digital assets.

Ether is the second largest crypto asset and has become something of a blue chip coin along with bitcoin, although its value proposition is distinctly different. While bitcoin is seen primarily as a long-term store of value, an investment in ether is considered more akin to an investment in early stage technology. The ether token fuels the Ethereum network, which powers different applications, like decentralized finance (DeFi) projects, nonfungible tokens (NFTs) or the tokenization of real world assets like commodities, securities, art, real estate and more.

Ethereum also provides opportunities for staking, which is a way for investors to earn interest on their ether holdings by locking up tokens on the network for a period of time — although ether ETFs in the U.S. may not participate. The SEC has alleged in lawsuits against Coinbase and Kraken that staking-as-a-service offerings are unregistered securities. Ark, Fidelity and Grayscale updated their filings this month to remove staking from their proposals.