The U.S. Securities and Exchange Commission (SEC) is set to approve the first exchange-traded funds (ETFs) based on Ethereum futures, according to a Bloomberg report on Aug. 18
The green light from the regulatory body could pave the way for several firms, including Volatility Shares, Bitwise, Roundhill, and ProShares, that have filed to launch ETFs based on ETH futures.
If approved, the approval may be seen as a ‘win’ for the crypto industry, so let’s look into the crypto ETF landscape some examine the potential impact.
The SEC has, until now, been hesitant to permit ETFs directly based on cryptocurrencies. However, this trend shifted in late 2021 when trading in a fund involving Bitcoin futures contracts started on the Chicago Mercantile Exchange. As a result, market speculation has been growing around the possibility of an Ethereum futures product being next on the approval line.
The SEC has been slow to authorize a product involving derivatives in the second-largest cryptocurrency as the regulator continues to express concerns over the potential manipulation of cryptocurrency prices and the possibility of inadequate liquidity.
The Crypto ETF landscape.
In related news, Grayscale Investments LLC, a prominent U.S. crypto asset manager, is awaiting the SEC’s decision on its application to convert its Bitcoin trust into an ETF. As reported on Aug. 17, Grayscale has hinted at expanding its ETF team, indicating the firm’s preparedness to move forward, depending on the SEC’s decision.
In another development, Valkyrie Investments also filed for an Ethereum futures ETF on Aug. 16. Almost all of the fund’s assets will be invested in exchange-traded Ethereum futures, with a small portion allocated to collateral investments such as cash, cash-like instruments or high-quality securities.
Mike Novogratz, Galaxy Digital CEO, cited insider contacts at BlackRock and Invesco, expressing optimism that a spot Bitcoin ETF’s regulatory approval is a “question of when not if.” Institutional players, he added, are optimistic that the SEC will give spot Bitcoin ETFs the green light within the next four to six months.
As the crypto industry awaits these pivotal decisions, the potential approval of ETHfutures ETFs signals a new era of acceptance and integration of cryptocurrencies into mainstream financial products.
Impact of crypto futures ETFs.
The first Bitcoin ETF launched in 2021, BITO, interestingly went live close to the top of the bull market. The chart below shows the correlation between the price of Bitcoin (blue) and BITO (orange). Further, the correlation coefficient indicator below (red) identifies periods where BITO and BTC prices diverged.
Those expecting an Ethereum Futures ETF to be a bullish signal may refer to this chart for historical data on the impact of past crypto futures events. While past performance is never entirely indicative of future price movements, the chart indicates a warning sign for investors.
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