Spot Ethereum ETF: ARK 21Shares Updates Application, No Staking

ARK Invest and 21Shares have removed a key staking component from their spot Ethereum ETF application, marking a significant amendment to the fund’s proposal. The previous filing indicated that the ETF sponsor might intermittently pool some of the trust’s ether assets through reputable third-party providers.

As a result, the fund would receive staking rewards that would be deemed income, with possible risks such as slashing penalties. Nevertheless, the most recent filing from ARK Invest or 21Shares has left this element out completely.

Eric Balchunas, an analyst at Bloomberg ETF, commented on the updated filing and, appreciating the strategic move, guessed what the reasons would be. He proposed that this could be an effort to simplify the application procedure by meeting with the future SEC guidelines or by eliminating a potential objection that would lead to a failure.

Background of the Spot Ethereum ETF Proposal

Originally filed in September 2023, the ARK Invest and 21Shares Ethereum ETF aims to offer investors direct access to ether by trading on the Cboe BZX Exchange. The fund is constructed to utilize the CME CF Ether-Dollar Reference Rate—New York Variant for precise price tracking.

Functioning as the trust sponsor, 21Shares, providing the trustee role, Delaware Trust Company, and the ether custodian, Coinbase Custody Trust Company, the ETF is anticipated to provide an effective way for investors to gain exposure to Ethereum through standard brokerage accounts.

ARK Investment Management is the supervisor of the fund and provides marketing assistance as well.

Challenges to Approval and Regulatory Sentiment

The optimism for the approval of a spot Ethereum ETF by the SEC has decreased over the past few months. In April, Balchunas recalibrated his approval likelihood prediction to 25% by the end of May as opposed to the original 70%.

Regulatory delays and shifts in sentiment have also had an impact on the broader cryptocurrency ETF market, with the SEC delaying decisions on a number of proposed funds.

Many of the applications for spot Ethereum ETFs are still pending, with no confirmation yet of SEC approval. At the same time, Grayscale Investments drew back its Ethereum Futures ETF application and turned its attention to converting its Ethereum Trust (ETHE) into a spot Ethereum ETF.

Investor Expectations

The omission of the staking component represents the changing regulatory landscape and the unfolding of compliant structures that conform to SEC standards.

If approved, a potential Ethereum ETF could represent one of the most crucial entry opportunities for institutional and retail investors who prefer exposure to digital assets via traditional, regulated vehicles.

The ETF market, however, continues to await regulatory decisions, with Invesco Galaxy‘s spot Ethereum ETF decision now postponed to July 2024. ARK 21Shares expects to receive a response to its amended application by May 23, 2024, though it remains to be seen if or when the SEC will provide approval.

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