SEC Opens Public Comment Period for Ethereum ETFs Amid Regulatory Scrutiny

The US Securities and Exchange Commission (SEC) has initiated a public comment period for several spot ether exchange-traded funds (ETFs), as disclosed in recent filings. 

On a recent Tuesday, the SEC called for public commentary on three proposed ETFs: the Fidelity Ethereum Fund, Grayscale Ethereum Trust, and Bitwise Ethereum Trust. The agency, through filings, expressed its intent to gather insights from interested individuals regarding the proposed rule changes associated with these ETFs.

"The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons," the agency stated in its filing concerning Bitwise.

This move reveals the regulatory scrutiny surrounding the cryptocurrency market and highlights the SEC's cautious approach toward expanding investment vehicles in this domain.

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Delays and Uncertainties Surrounding Ethereum ETF Approval

The SEC postponed its decision-making timeline for a spot ether ETF, the VanEck Ethereum ETF, according to a filing dated March 20. The agency announced an extension until May 23, 2024, to evaluate the ETF, seeking further input from the public. 

This delay follows similar actions concerning the Hashdex Nasdaq Ethereum ETF and the ARK 21Shares Ethereum ETF. Before that, on March 4, the SEC delayed approval for Ethereum ETFs proposed by financial giants BlackRock and Fidelity.

However, amidst the delays, the SEC has sought feedback on potential risks of fraud and market manipulation associated with Ethereum's proof-of-stake (PoS) mechanism. 

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Market Sentiment and Analyst Projections

Market sentiment regarding the approval prospects of a spot ether ETF has waned in recent times. Bloomberg ETF analyst Eric Balchunas has revised the likelihood of a spot Ethereum ETF approval by May from approximately 70 percent to 35 percent. 

Adjustments like this reflect the current uncertainty surrounding regulatory decisions.

Another Bloomberg ETF analyst, James Seyffart, expressed concerns regarding Fidelity's filing, noting the absence of notable changes and the SEC's silence.

In response to the SEC's call for public comments, Consensys, a prominent Web3 platform, submitted a letter advocating for Ethereum's PoS consensus model on March 29. The letter highlighted the robust anti-fraud and anti-manipulation mechanisms inherent in Ethereum's protocol, contrasting it favorably with Bitcoin's proof-of-work (PoW) model.