The prospectus for a brand new Ethereum ETF (exchange-traded fund) was recently filed with the U.S. Securities and Exchange Commission (SEC). This ETF will effectively track the performance of a market capitalization portfolio of Bitcoin (BTC) and Ethereum (ETH). The documents surrounding this were released on May 9.
A crash course on ETFs
For those who don’t know, an ETF is a collection of securities – like stocks – that actively track an underlying index. Probably the best example of this is the SPDR S&P 500 ETF (SPY), which keeps track of the S&P 500 index. This particular index is a market cap portfolio of the 500 largest U.S. publicly traded companies. Many consider it to be the best measurement of large-cap U.S. equities.
ETFs usually consists of an array of investment types. This includes stocks, commodities, bonds, or a complete mixture of investment types. The standard ETF is a marketable security, so it has a price that allows it to be easy to buy and sell.
The price of an ETF’s shares changes throughout the trading day during the purchases of and the selling of the shares on the market. This is in stark contrast to mutual funds. These do not trade on the exchange and only trade once per day following the closing of a market.
USCF & XBET‘s Ethereum ETF
The Ethereum ETF comes courtesy of Crescent Crypto Index Services LLC, which is a branch of Crescent Crypto Asset Management LLC. This firm boasts that it’s the leader in crypto index fund investing and crypto benchmarking. The USCF Crescent Crypto Index Fund (XBET) aims to issue shares that trade on the NYSE Arca stock exchange. The United States Commodity Funds LLC (USCF) sponsors the ETF and will invest XBET’s assets in the two portfolio cryptocurrencies.
According to the prospectus:
“XBET is an exchange traded fund. This means that most investors who decide to buy or sell shares of XBET place their trade orders through their brokers and may incur customary brokerage commissions and charges. Shares of XBET are expected to trade on the NYSE Arca under the ticker symbol ‘XBET’ and will be bought and sold throughout the trading day at bid and ask prices like other publicly traded securities.”
USCF is, overall, a commodity pool operator subject. It comes under the regulatory supervision of the Commodity Futures Trading Commission. Moreover, according to the filing, the National Futures Association under the Commodity Exchange Act (“CEA”).
In a press release, the co-founder of Crescent, Christopher Matta, had this to say about the company: “Crescent’s mission is to create innovative investment solutions that make cryptocurrencies accessible to mainstream investors.”
XBET adds to the list of crypto ETFs that the SEC is currently reviewing. In late March, decisions on two Bitcoin ETFs were postponed. They were the following:
- One filed by Bitwise Asset Management with NYSE Arca
- One from VanEck and SolidX in particular with Cboe BZX Exchange
Bitwise’s latest ETF proposal diverges considerably from all previous Bitcoin ETFs. This is because it would rely on third-party overseers to maintain its physical Bitcoin. Furthermore, it would pull price data from a wide variety of certified crypto exchanges. All of this aims to reduce the potential for any kind of price manipulation.
In late January, Cboe resubmitted the proposal and the Federal Register would publish it on February 20. The SEC would later extend this decision, designating May 21 as the date when one of two things would happen. Either it makes a firm decision or launch proceedings to do so. While the SEC has yet to approve any Bitcoin ETFs, many believe that this may happen sometime this year.
This isn’t the first Ethereum ETF proposal
Something important to note is that this is not the first Ethereum ETF proposal to reach the filing stage. Back in 2017, the SEC was on the fence about approving a product from EtherIndex Ether Trust. This would also list on NYSE Arca.
The EtherIndex Ether Trust was first filed by its backers in July 2016. They were seeking to launch an Ethereum ETF with a cache of ethers supporting it on the NYSE Arca exchange. NYSE Arca then went on to file for a rule change clearing the way for the ETF listing in December.
The agency made this remark on the matter:
“Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change.”
The possible launch of an Ethereum ETF – though still subject to final approval – would mark the latest development in the ether market. This is an event that will follow recent price increases that have seen the value of 1 ETH rise above $245.
Looking to the future
SEC Commissioner, Robert Jackson, had this to say about an ETF’s potential approval:
“Eventually, do I think someone will satisfy the standards that we’ve laid out there? I hope so, yes, and I think so. Getting the stamp of approval from the deepest and most liquid capital markets in the world is hard, and it should be.”
Attorney Jake Chervinsky of the Kobre Kim law firm took this another step further. He says that, in his opinion, “…it’s entirely possible that another  months of development in the cryptocurrency ecosystem could be enough to finally warrant approval of a bitcoin ETF.”
As par for the course, all we can do now concerning the possible Ethereum ETF is wait and see. Regardless of the SEC’s approval (or lack thereof), it’s unlikely that this will be the last time such a proposal is submitted. This is especially true for ones that involve ether, as well as Bitcoin.
However, if the EtherIndex Ether Trust proposal has shown us anything, it’s that Ethereum – and by extension, most cryptocurrencies – will continue developing these innovative concepts.