Fidelity Amends S-1 Filing for Ether ETF, Omitting ETH Staking
Fidelity has recently made updates to its S-1 application with the United States Securities and Exchange Commission (SEC) in order to seek approval for its spot Ether exchange-traded fund (ETF). This move reflects the changing attitudes within the industry and regulatory landscape.
The revised application emphasizes that the Ether tokens underlying the ETF will not be staked, which aligns with the SEC’s requirements for publicly traded securities products.
There has been a noticeable shift in regulatory attitudes towards spot Ether ETFs in the United States. The asset management giant submitted an updated S-1 registration form to the SEC, indicating that the Ether tokens underlying its proposed ETF will not be staked. This amendment comes at a timely moment, as there seems to be a change in regulatory attitudes towards spot Ether ETFs in the United States.
Previously, it appeared that the SEC was inclined to reject such applications, as evidenced by regulatory filings, public statements from SEC Chair Gary Gensler, and ongoing investigations. However, recent developments suggest a potential reversal in this stance. Bloomberg analysts James Seyffart and Eric Balchunas have adjusted their forecasts for the approval probabilities of a spot Ether ETF from a mere 25% to an optimistic 75%.
This shift can be attributed to the ETF becoming a contentious political issue, a sentiment that is echoed by multiple industry sources. Seyffart expressed concerns about the political implications of the SEC’s changing approach, hinting at significant discussions and the possibility of numerous filings in the near future. He acknowledged the high stakes involved, especially considering the vocal and engaged Ether community that closely monitors such developments.
The SEC’s decision-making process is currently in the spotlight as the deadline for VanEck’s spot Ether ETF is set for May 23. This application is one of the first in a series under consideration, with other major financial entities like ARK 21Shares, Hashdex, Invesco Galaxy, BlackRock, and Fidelity also awaiting outcomes. The SEC has taken the full extent of its regulatory timeline to review VanEck’s application, indicating a thorough review process.
In addition, the classification of staked Ether remains a contentious topic. The SEC has previously indicated that cryptocurrencies that allow staking might meet the criteria of securities under the Howey test. This perspective was supported by statements made by Gensler during a 2022 Senate Banking Committee hearing, as reported by The Wall Street Journal. The transition of Ethereum to a proof-of-stake (PoS) model adds further complexity to this debate, potentially influencing the SEC’s regulatory approach.
Despite a potential softening on the approval of Ether ETFs, the distinction between Ether and staked Ether remains significant. Alex Thorn, head of research at Galaxy Research, speculates that the SEC might differentiate between non-staked ETH and staked ETH or “staking as a service” models, treating the latter as securities. This nuanced view suggests that the SEC is trying to navigate the complex regulatory and technical landscapes.
Fidelity’s initial filing for the ETF on March 27 proposed staking a portion of the ETH holdings, acknowledging the risks associated with staking, such as potential fund losses through slashing penalties and liquidity issues. It also recognized the tax implications of staking rewards, which would be considered income for the fund, leading to taxable events for investors without direct distributions.
The evolving regulatory framework and Fidelity’s strategic adjustments in its ETF proposal illustrate the delicate balance between innovation, investor protection, and regulatory compliance in the rapidly growing cryptocurrency sector. As the deadline approaches, the industry eagerly awaits the SEC’s decisions, which could set significant precedents for the future of cryptocurrency investments and the broader financial landscape.
