The potential for a spot Ethereum exchange-traded fund (ETF) has become a topic of keen interest among investors and industry insiders.
During a recent interview with The Block, Steven McClurg, Chief Investment Officer at Valkyrie, shared his insights on the matter, suggesting that while a spot Ethereum ETF may not be imminent, its approval could be on the horizon within the next couple of years.
The crypto industry has been buoyed by the January 10th approval of the first spot Bitcoin ETFs in the U.S., a milestone that has attracted billions of dollars into the funds. This development has set the stage for further expansion of spot cryptocurrency ETFs, with major firms like Fidelity and BlackRock applying for a spot Ethereum ETF. Despite some analysts’ predictions of a potential SEC approval as early as May this year, Valkyrie, for now, remains on the sidelines of this specific ETF race.
McClurg emphasized the significant groundwork laid by regulators and the SEC in launching spot Bitcoin ETFs, highlighting the learning curve associated with introducing a new asset class. He pointed out the distinct differences between Bitcoin and Ethereum, suggesting that the SEC would require additional time to fully comprehend the nuances, particularly concerning disclosure requirements for Ethereum-based products:
“So I think it will take the SEC a lot of time to get their head around what disclosures look like for a product like that … So it could take another year just to understand the disclosure aspect.”
The inclusion of a staking component in some Ethereum ETF applications introduces further complexity, according to McClurg. He expressed concerns over the challenge of offering Ethereum staking without categorizing it as a security feature, a sentiment echoed by analysts at S&P Global Ratings who warned of increased concentration risk associated with staking.
The conversation also touched upon the possibility of a spot XRP ETF, given Ripple’s legal battles with the SEC. McClurg referenced a judge’s ruling that differentiated the legality of Ripple’s XRP sales, noting that Bitcoin, Ether, and XRP have all been considered non-securities by the SEC or through court decisions. However, the classification of Ether as a security remains a subject of debate, underscoring the ongoing regulatory uncertainties facing cryptocurrency ETFs.
On February 20, in a Bloomberg TV interview, Ripple CEO Brad Garlinghouse discussed the pressing need for regulatory clarity within the crypto market, explored the landscape of spot crypto ETFs, and shared his thoughts on how the 2024 elections could shape the industry’s future.
Garlinghouse reiterated Ripple’s long-held stance calling for clearer crypto regulations. He expressed frustration with the SEC’s approach of attempting to regulate through lawsuits rather than well-defined guidelines. Despite facing ongoing SEC action, he noted significant favorable court rulings for Ripple, including determinations that XRP does not qualify as a security. Garlinghouse remains hopeful that the current uncertain situation will be resolved, either through consistent legal wins against the SEC or via Congressional legislation.
The Ripple CEO welcomed the recent approval of spot Bitcoin ETFs as a positive sign for the crypto sector. He believes these ETFs bolster market security and provide beneficial options for investors. Garlinghouse predicts the rise of additional spot crypto ETFs, possibly even one focusing on XRP, offering investors a way to spread their risk across diverse crypto assets. He views the growth of such investment vehicles as a natural outcome of increasing public demand.
Addressing the potential impact of the 2024 elections, Garlinghouse wants the U.S. to reclaim its leadership role in shaping crypto regulation. He observes that other major economies have outpaced the U.S. in establishing a clear framework. Ripple, alongside other key players, created a pro-crypto, pro-innovation political action committee. This move signals bipartisan support for their advocacy work. He also highlighted John Deon’s campaign against Elizabeth Warren as evidence that pro-crypto sentiment is gaining traction in the political arena.
Garlinghouse sought to dispel the portrayal of the crypto industry as hostile toward regulation. Contrary to Senator Warren’s viewpoint, he asserted that most players, including Ripple, support standards like “Know Your Customer” and “Anti-Money Laundering” compliance. Garlinghouse aims to shift the narrative, emphasizing the industry’s desire for clear-cut rules it can adhere to.
Finally, he touched on Ripple’s recent acquisitions, like Standard Custody, and its plans to expand secure custody services to corporate and institutional clients. Garlinghouse views strong custodial solutions as crucial to mainstream crypto acceptance, mentioning collaborations with major financial firms to underscore Ripple’s progress in this domain.
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