SEC Delays Decision on BlackRock’s Ethereum ETF Proposal, Raises Questions on Market Manipulation and Investor Protection

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The U.S. Securities and Exchange Commission has again extended the decision timeline for BlackRock’s proposed spot Ethereum exchange-traded funds. This marks the second delay as the SEC closely examines the legal and policy implications surrounding the iShares Ethereum Trust. 

Ethereum ETF Delayed Again

The SEC’s recent filing reveals a decision delay on BlackRock’s application for the iShares Ethereum Trust. Initially filed on November 21, 2023, the proposal seeks to list and trade shares of the Trust under Nasdaq Rule 5711(d), which governs Commodity-Based Trust Shares. 

The SEC’s decision, originally expected by January 24, 2024, has been extended for the second time, with the reason of conducting a more in-depth analysis of legal and policy considerations.

SEC’s Grounds for Disapproval

The SEC’s decision to institute proceedings under Section 19(b)(2)(B) of the Act suggests a careful examination of the proposed rule change. The focus is on ensuring consistency with Section 6(b)(5) of the Securities Act, emphasizing the prevention of fraudulent and manipulative acts and practices, along with investor protection and the public interest. 

SEC Assistant Secretary Sherry R. Haywood writes, “The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be ‘designed to prevent fraudulent and manipulative acts and practices’ and ‘to protect investors and the public interest.”

The proposed Ethereum Trust aims to reflect the performance of the price of Ether, with assets primarily consisting of Ether held by a custodian. 

The daily valuation process involves evaluating Ether based on the CF Benchmarks Index. It states in the filing, “On each Business Day, as soon as practicable after 4:00 p.m. Eastern Time (“ET”), the administrator of the Trust will evaluate the ether held by the Trust as reflected by the CF Benchmarks Index and determine the net asset value of the Trust. … The Trust will issue and redeem baskets of Shares on a continuous basis only in exchange for an amount of ether determined by the trustee of the Trust.”

Eric Balchunas’ Take On It –

Senior Bloomberg analyst Eric Balchunas provides a unique view in this scenario. He says, “No offence to the ETH people but this is such small potatoes vs spot bitcoin ETFs. It’s like the opening act coming on after the headliner.” 

Balchunas predicts that Ethereum ETFs might not garner the same attention and inflows as their Bitcoin counterparts, drawing an analogy between them and GenX bands in a concert lineup.

As the SEC evaluates BlackRock’s Ethereum ETF proposal, market participants keenly observe the potential implications on investor sentiment and market dynamics. Ethereum ETFs, if approved, could open new gates for investors seeking exposure to the cryptocurrency market without directly holding the digital asset. 

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