Grayscale Investments, the world’s largest crypto asset management company, has withdrawn its application for an Ethereum futures ETF from the U.S. Securities and Exchange Commission (SEC). The reason behind this decision remains unknown, but Grayscale stated that the SEC had repeatedly postponed the review of their application since its initial submission on September 19, 2023. The regulatory agency claimed that it needed more time to examine the proposal on November 15th, December 18th, and March 22nd of this year.
This move by Grayscale has sparked speculation among experts. James Seyffart, a senior analyst at Bloomberg ETF, believes that the ETF application may have been a strategic maneuver. By using their Ethereum futures ETF as a “Trojan horse,” Grayscale aims to create a situation similar to their victory in the GBTC lawsuit, where the approval of futures and spot differed. In August of last year, the U.S. Federal Appeals Court sided with Grayscale in a lawsuit against the SEC, accusing the agency of approving Bitcoin futures ETFs while rejecting Bitcoin spot ETFs.
Given this context, Seyffart is puzzled by Grayscale’s decision to withdraw at this time, as the SEC must make a decision to approve or reject at least one spot Ethereum ETF application by May 23rd (note: the deadline for VanEck is May 23rd, while ARK 21Shares and Hashdex have final deadlines of May 24th and May 30th, respectively). He speculates that the SEC and Grayscale may have discussed the matter and convinced Grayscale to voluntarily withdraw. However, this is purely speculative.
Others speculate that Grayscale may be aiming to increase the chances of approval for the spot ETF. The SEC could choose to approve the Ethereum futures ETF while rejecting the spot ETF.
Seyffart does not rule out the possibility of Grayscale resubmitting a modified application, which would reduce the SEC’s workload but also eliminate the opportunity for litigation. “Withdrawing and resubmitting the application would reduce the workload for the SEC, but it also means that Grayscale or anyone else cannot file a lawsuit now.”
Additionally, in the comments section of an X tweet, some crypto enthusiasts believe that Grayscale withdrew its application because the SEC will approve the spot Ethereum ETF. Seyffart disagrees with this view. “I don’t think that’s going to happen (although the possibility is not zero), so I think it’s something else. That being said, if I were Grayscale, this would indeed be one of the few reasons I would voluntarily withdraw this application.”
It is worth noting that SEC Chairman Gary Gensler stated in an interview with CNBC on May 7th that the SEC is still weighing its decision on the Ethereum spot ETF and reiterated concerns about fraud in the crypto market. “The issue of an Ethereum spot ETF is one that our commission is facing right now. We are a commission of five members, and these matters will be dealt with at the appropriate time.”
Recently, analysts from companies such as JPMorgan Chase, Standard Chartered, and Bloomberg have all expressed doubts about the possibility of the approval of a spot Ethereum ETF in May. With Grayscale’s withdrawal of their application, the likelihood of an Ethereum spot ETF getting approved in May may be further diminished.