Fidelity Revamps S-1 Filing for Ether ETF, Omits 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 shifting landscape of the industry and the nuances of regulation.
The revised application highlights that the underlying Ether tokens in the ETF will not be staked, which aligns with the SEC’s requirements for publicly traded securities products.
There have been notable changes in regulatory attitudes towards spot Ether ETFs in the United States. Fidelity 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 is timely, as there appears to be a shift in regulatory attitudes towards spot Ether ETFs in the country.
Previously, it seemed likely that the SEC would 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. Analysts James Seyffart and Eric Balchunas from Bloomberg have revised their forecasts for the approval probabilities of a spot Ether ETF from 25% to 75%, expressing optimism.
This shift is believed to be due to the ETF becoming a contentious political issue, a sentiment echoed by multiple industry sources. Seyffart expresses concern over the political implications of the SEC’s changing approach, hinting at significant discussions and possibly a wave of filings in the near future. He acknowledges the high stakes involved, especially given the closely-watched Ether community.
The SEC’s decision-making process is currently in the spotlight, with a pending deadline for VanEck’s spot Ether ETF set for May 23. This application is among 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 its time with VanEck’s application, indicating a thorough review process.
Meanwhile, the classification of staked Ether remains a contentious topic. The SEC has previously suggested that cryptocurrencies allowing staking could meet the criteria of securities under the Howey test. This view was supported by Gensler’s statements during a 2022 Senate Banking Committee hearing.
The transition of Ethereum to a proof-of-stake (PoS) model adds complexity to this debate, potentially influencing the SEC’s regulatory approach.
Despite a possible 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 may 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 complex regulatory and technical landscapes.
In its initial filing for the ETF on March 27, Fidelity 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 demonstrate 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.
