The US Securities and Exchange Commission (SEC) has approved the listing of exchange-traded funds (ETFs) on Ethereum, the world's second-largest cryptocurrency by market capitalization, on Nasdaq, the New York Stock Exchange (NYSE), and the Chicago Board Options Exchange (CBOE)
Commenting on ETH-ETF approval by the SEC, Dr Alpay Soytürk, Chief Regulatory Officer at Spectrum Markets, the pan-European trading venue for securitised derivatives, on ETH-ETF said:
“After approving ETFs on bitcoin, the US Securities and Exchange Commission (SEC) has now given the green light to ETFs on ethereum.
In principle, the decision is a welcome one, as it allows investors to access ethereum through a regulated and transparent ETF wrapper. While this will be well received by the crypto community, it is not all cause for celebration.
It should be noted that this form of investment is and will remain largely reserved for US investors. Although spot crypto ETFs are tradable on some European exchanges, they are not allowed to be issued in the European Union. Where they are available for trading, the issuer is based outside the EU and is therefore not subject to EU legislation and therefore does not benefit from the associated investor protection.
The reason for this is the directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, better known as the UCITS Directive.
In addition to a number of obligations relating to investment policy, risk management, transparency and custody, there are clear requirements relating to diversification.
This directive includes diversification rules for the inclusion of indices in which funds such as ETFs invest. However, while member states have numerous options to grant certain exemptions, these are all conditional and virtually none of them allow for disproportionate concentration risk on an unsecured basis.
In this respect, the question also arises as to how the protection associated with authorisation by a securities regulator should be assessed. This is not a criticism of the ethereum project, but rather the question of whether the authorisation of investment funds in individual securities is a sensible measure.
Of course, the newly approved ETFs offer a way to gain exposure to bitcoin or ethereum without having to hold the crypto assets directly. But firstly, there have been alternatives in this country before, such as securitised derivatives on BTC or ETH. Secondly, the ETF approval paves the way for large institutional institutions to get heavily involved in distribution, as the fierce fee competition among large US asset managers has shown in the recent past.
If this leads to a situation where retail investors with a more conservative risk profile and investment objectives not suited to this type of security become more involved and are unable to adequately compensate for sharp downturns, the securities regulator will be caught in the crossfire.”