Ark Invest and 21Shares Seek Cash-Based Creation and Redemption for Spot Ethereum ETF

Ark Invest and 21Shares Seek Cash-Based Creation and Redemption for Spot Ethereum ETF

In a recent S-1 filing, Ark Invest and 21Shares have amended their joint application for a spot Ethereum exchange-traded fund (ETF). The filing highlights that authorized participants will only have access to cash creations and redemptions, excluding in-kind involvement with ETH. This deviation from the process observed in recent spot Bitcoin ETF approvals has prompted speculation on the reasoning behind the U.S. Securities and Exchange Commission’s (SEC) preference for cash-based methods. Additionally, the amendment suggests that the ETF issuers plan to engage in Ethereum staking, although the outcome of this endeavor remains uncertain.

The Shift to Cash Creations and Redemptions

With cash creations and redemptions playing a crucial role in recent spot Bitcoin ETF approvals, it is reasonable to expect a similar requirement for spot Ethereum ETFs. However, the amended joint application disclosed in the S-1 filing indicates that authorized participants will solely utilize cash for the creation and redemption process of ETF shares. The reason behind the SEC’s insistence on cash-based methods remains unclear, although some reports suggest that existing U.S. regulations pose challenges for participants handling cryptocurrencies.

The filing also sheds light on the ETF issuers’ intention to participate in Ethereum staking activities. 21Shares US LLC, the sponsor, expects to stake ether tokens from the Trust’s Cold Vault Balance. Notably, while staking may generate rewards treated as income, it is important to acknowledge the associated risk of loss. However, the final proposal does not guarantee the inclusion of staking activities, as this section of the amendment remains uncertain and bracketed.

The amendment made by Ark Invest and 21Shares represents a positive development for spot Ethereum ETFs. While the SEC recently extended the deadlines for several other ETH ETFs, today’s amendment demonstrates progress in the ongoing discussions surrounding the approval process. It is crucial to note that the SEC must make a decision on a spot Ethereum ETF by May 23, including VanEck’s proposal and other similar funds. The level of optimism regarding the approval of a spot Ethereum ETF is mixed, with various predictions forecasting different probabilities. Polymarket prediction market reports 43% odds of approval in May, while Bloomberg ETF analyst James Seyffart believes there is a 60% chance. A JP Morgan member holds a 50% expectation, whereas Standard Chartered Bank anticipates approval in May, and TD Cowen does not anticipate approval until 2024.

Market Impact and Outlook

Although it remains uncertain whether the latest news has affected investor sentiment, Ethereum (ETH) has shown a slight gain above the 24-hour market average. ETH has experienced a 1.9% increase, while the overall crypto market is up by 1.5%, and Bitcoin (BTC) has risen by 1.3% in the same period. As of now, Ethereum holds the second position in terms of market capitalization, with a valuation of $292.25 billion and a 24-hour trading volume of $9.42 billion. The global cryptocurrency market is currently valued at $1.69 trillion, with a 24-hour volume of $47.65 billion, and Bitcoin dominance stands at 51.18%.

The joint application amendment by Ark Invest and 21Shares for a spot Ethereum ETF has introduced cash-based creations and redemptions, deviating from the recent precedent set by spot Bitcoin ETFs. The inclusion of Ethereum staking activities further highlights the evolving nature of the ETF proposal. While the SEC’s decision on a spot Ethereum ETF is awaited, market sentiment and expectations surrounding its approval remain varied. As the cryptocurrency market continues to evolve, these recent developments shed light on the ongoing effort to expand investment opportunities in the Ethereum ecosystem.


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