- ARK Invest and 21Shares proposed that the SEC approve the use of staking in a spot Ethereum ETF.
- The options market is pointing to increased expectations for product approval in May and increased uncertainty over Fed policy.
On February 7, ARK Invest and 21Shares sent updated application to launch a spot Ethereum ETF. The companies offered to stake coins from the trust to generate additional income.
The document provides for the use of only cash when creating and redeeming shares of an exchange-traded fund, similar to how this is implemented in Bitcoin-based instruments.
HERE WE GO AGAIN: ARK/21Shares has just filed an amended S-1 for their spot Ether ETF, looks like they updated to be only cash creations and some other things that bring it in line w the recently approved spot btc etf prospectus.. pic.twitter.com/clN2oZmA6I
— Eric Balchunas (@EricBalchunas) February 7, 2024
This cash model requires issuers to sell the assets of the product and then transfer cash to the investor. The alternative natural scheme gives the manager greater flexibility in portfolio management.
“The issuer may […] place a portion of the Trust's assets through one or more reliable providers [сервиса]. […] The Fund will receive certain rewards for staking Ethereum, which can be considered as its income. Number of coins received in this way […] may vary significantly” – the document says.
Lawyer Scott Johnsson noted that the above-mentioned fragment was given in square brackets. He saw this as a way to spark discussion about the use of staking.
For those not familiar with the curiosities of legal drafting, the implication of adding brackets around new block language like this is saying: “we're putting this here, because we want to add it… but let's have the conversation because this might come across as inflammatory…
— Scott Johnsson (@SGJohnsson) February 7, 2024
“They wanted to say, 'We're putting this here because we want to add it… but let's keep the conversation going.'” – Johnsson wrote.
Will ETFs be approved in May?
SEC may approve spot Ethereum ETFs in May, a similar scenario is indicated by the state of the options market. About this in the comments The Block said Bitfinex Head of Derivatives Jug Kooner.
“Traders are adjusting their contracts to take into account May 23.”Bitfinex head of derivatives Jag Kooner told The Block.
This date represents the first final decision date for applications to launch the tool from VanEck and ARK/21Shares.
The specialist drew attention to a noticeable increase in open interest (OI) for call options with expirations in March, April and May.
“The put-call ratio is heavily skewed toward the latter at 0.31,” – explained Kooner.
The expert clarified that other indicators indicate a more cautious position among traders, which may indicate approval of the product no earlier than 2025 or 2026.
“The classification of Ethereum as a security or commodity is a major factor influencing these forecasts and the reaction of the derivatives market,” – he explained.
Kuner noted that on the horizon until February, the largest OI was concentrated on contracts with expirations in the range of $2400-2450, and the price max pain concentrated around $2300.
For options expiring in April and beyond, the latest figure is $2,400 and the highest open interest is $2,900.
According to the specialist, in March there is an anomaly: the price of max pain is close to $2000, and the OI is distributed between $2000 and $3000.
“Traders are speculating on short-term and long-term growth, but are taking a more cautious approach in the near term. This may be greatly influenced by recent statements Fed that she is not considering the possibility of reducing rates until May,” explained Kooner.
What do the experts think?
In recent months, the SEC has delayed decisions on applications to launch spot Ethereum ETFs from several companies, including Grayscale, BlackRock and Invesco with Galaxy.
Some experts believe that the regulator will register the products in May. Grayscale allowed the department to make a positive decision in the summer.
In December, SEC Chairman Gary Gensler, commenting on the agency’s change in position regarding Bitcoin spot funds, cited “court decisions” as one of the reasons. Department Commissioner Hester Pierce expressed confidence that in the case of Ethereum such processes will not be required.
However, a number of analysts, for a number of reasons, doubt the imminent registration of spot ETH-ETFs.
Let us remember that BlackRock CEO Larry Fink said that he “sees value” in such Ethereum products, calling them a step towards tokenization.
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