Grayscale Withdraws Ethereum Spot ETF Proposal Amid Regulatory Obstacles

In a shocking development, American-based cryptocurrency asset management giant Grayscale Investments has withdrawn its Ethereum Spot Exchange-Traded Fund (ETF) proposal with the United States Securities and Exchange Commission (SEC). This ruling is made against the backdrop of regulatory ambiguity that surrounds exchange-traded funds in the US that are based on digital assets.

Grayscale Takes Back Its Ethereum Futures Trust (ETH) ETF

On Tuesday, May 7, Grayscale Investments filed its withdrawal of its Ethereum Futures Trust (ETH) ETF, a proposal that was submitted to the SEC under the Securities Exchange Act of 1934 and Rule 19b-4 thereunder. The proposal which was filed in September last year and published in October, aimed at further integrating Ethereum into the US regulatory landscape and creating broader exposure for ETH.

A month after the request was published, the SEC postponed its final decision on whether to approve or disapprove the product, demanding additional time to access the ETH spot ETF. In March 2024, the regulatory watchdog delayed its ruling on the exchange fund again, citing more time to analyze the proposed rule change. However, nearly two months later, the firm decided to withdraw its request to convert the Ethereum Trust (ETHE) to a spot ETF.

This intriguing move came just two weeks after Grayscale filed an S-3 Registration Statement for its Ethereum Trust, marking a bold step in its Ether investment services. By submitting the S-3 registration statement, Grayscale intends to enhance the ETH Trust’s regulatory compliance and clarity. With the S-3 form filing, the asset company fulfilled all the requirements for the regulatory watchdog to review and rule on their ETH ETF proposal. 

In accordance with the Securities Act of 1933, the company submitted the S-3 form to the Commission. Grayscale made this significant step following NYSE Arca’s filing of Form 19b-4 for the firm’s Ethereum Trust.

The company intended to list its ETH ETF on NYSE Arca under the ticker ETHE and issue shares continuously upon the approval of NYSE Arca’s application on form 19b-4 to list shares and the effectiveness of form S-3 to register the shares. However, the only way that these shares were meant to be purchased was via a prospectus.

Crypto Community Views On The Development

Although the major motive behind Grayscale’s move has yet to be identified, there are speculations in the community regarding several potential reasons behind this.

Delving into the subject, Bloomberg Intelligence analyst James Seyffart claims the action was basically a trojan horse filing to produce similar conditions that permitted Grayscale to prevail in the GBTC litigation with the SEC.

Thus, he is guessing the SEC drafting a permission or rejection letter for an ETH futures ETF could be a possible reason Grayscale withdrew its fund.

ETH trading at $2,991 on the 1D chart | Source: ETHUSDT on Tradingview.com