SEC postpones Ethereum spot ETF staking! The market's expectation of ETH was disappointed

Latest news: The U.S. Securities and Exchange Commission (SEC) yesterday (14) in response to a number of applications to allow cryptocurrency exchange-traded funds (ETFs) to stake (ETH) and in-kind (in-kind) subscription and redemption of proposed rule changes, the SEC decided to postpone to allow more time to evaluate, a number of decisions originally scheduled for mid-April, have been postponed to early June this year.

 Scope of influence

SEC Assistant Secretary Sherry R. Haywood wrote in a filing on the VanEck crypto ETF. This shows that the regulator is still highly cautious about these innovative mechanisms involving crypto-derivative financial products.

"The Committee believes that it is appropriate to designate a longer period of time to act on the proposed rule change in order to allow sufficient time to consider the rule change and the issues it raises."

The main impact is Grayscale's two Ether-related investment products: Grayscale Ethereum Trust ETF and Grayscale Ethereum Mini Trust ETF.

On February 14 this year, the New York Stock Exchange Arca (NYSE Arca) submitted a rule change application for the two trusts, hoping to allow them to stake their ETH holdings to earn additional income for investors, which was originally available on April 17 but has now been postponed to June 1.

There has also been a delay in the changes to the VanEck Bitcoin Trust (ticker HODL) and VanEck Ethereum Trust filed by the Chicago Board Options Exchange BZX (CboeBZX), which was originally due to April 19 but was delayed until June 3.

In addition, the decision on the physical redemption mechanism of the Wisdom Tree Bitcoin Fund has also been delayed until June 3.

 Why is staking and redemption in kind critical?

"Staking" is the core function of Proof-of-Stake (PoS) such as Ethereum, holders can lock (stake) their tokens to obtain validation blocks and obtain corresponding rewards.

However, the introduction of staking also brings more complex regulatory issues, such as the nature of staking returns, the disclosure of risks, and the impact of ETF structure, etc., which require the SEC to take a longer period of time to carefully evaluate.

"Physical subscription and redemption" is a common mode of operation in the ETF market, especially after the US Bitcoin spot ETF was approved in large numbers earlier this year, the importance of this mechanism has been emphasized by the market, compared with the current cash creation (Cash Create/Redeem), physical redemption allows APs to directly exchange Bitcoin or Ether for ETF shares, or exchange ETF shares back to Bitcoin or Ether.

This model is often considered to be more efficient, lower to trade, less tracking error, and more competitive in the market, but for more volatile cryptocurrencies, the process of physical delivery, custody risk, and the potential impact on market liquidity are also aspects that the SEC must carefully consider.

 The market's expectation of Ether was disappointed

The market originally had high expectations for Ether spot ETFs with staking functions, but even in the Trump era, the authorities chose to be more cautious in the face of uncertainty in the face of the complex financialization of crypto commodities. Compared with the approval of multiple bitcoin spot ETFs in January this year, the market's expectations for the market brought by Ether spot ETFs have cooled significantly.

The main reason may lie in whether the mechanism of Ether itself may be classified as a security, and the complexity of staking and regulation brought about by the PoS mechanism.

Since the beginning of February, the price of Ethereum has been cut in half, and the initial optimism may be mixed with the existence of a lot of market impact on the spot ETF market, and the recent pessimism also reflects the disappointment of this expectation.

Compared with the uncertain regulation, Ethereum is also undergoing foundation reform recently, as well as the Pectra upgrade, which is currently scheduled to be launched on 5/7, and may be postponed again, but on the whole, Ethereum may have to wait until close to June, or wait for changes in the overall economy, before there are signs of a sharp rebound.

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