Grayscale Ethereum ETF Rule Change Pulled

The move comes as firms continue their bids for a novel spot Ethereum fund.

An application for a rule change that would have allowed Grayscale Investments to offer an Ethereum futures exchange traded fund has been withdrawn—puzzling some analysts. 

According to a Securities and Exchange Commission (SEC) filing on Tuesday, the NYSE Arca Inc., the exchange on which the fund would have traded, had withdrawn the request on May 3. 

"On May 3, 2024, the Exchange withdrew the proposed rule change," the filing said without specifying reasons for the decision. 

NYSE originally filed the application on Sept. 19, 2023. The SEC has twice delayed making a decision on the application, most recently on March 22. 

Bloomberg ETF analyst James Seyffart wrote in a Tuesday post on X/Twitter that he didn’t understand the firm’s rationale for withdrawing. "Idk why they'd do this honestly," Seyffart wrote.

Unlike the applications for spot Ethereum ETFs, which analysts say are unlikely to be approved imminently, nine Ethereum futures ETFs are already trading. The SEC approved a number of the funds last October. 

Since then, the funds have garnered modest assets compared to the first spot bitcoin ETFs, which have soared since they won SEC approval on Jan. 10 and began trading a day later. 

The largest Ethereum futures ETF, the ProShares Ether Strategy ETF (EETH), has only accumulated $77 million in assets since its unveiling, which is meager compared to the nearly $17 billion that BlackRock's iShares Bitcoin Trust (IBIT) has garnered in its four-month history. 

A Grayscale spokesperson declined to commentl.

Ethereum ETF Race

Some analysts have speculated that an Ethereum futures ETF could be used as leverage to push the SEC into approving a spot Ethereum ETF.

Last August, Grayscale won a watershed legal victory in federal court against the agency after the SEC blocked its conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF. In their decision, federal appeals court judges noted that the SEC’s blocking of the trust conversion was “arbitrary and capricious” because the agency had already approved bitcoin futures ETFs. By having an Ethereum futures ETF, Grayscale could have potentially used the same logic to sue the agency, Seyffart speculated. 

“This was essentially a trojan horse filing in my view, in order to create the same circumstances that allowed Grayscale to win the GBTC lawsuit,” wrote Seyffart on X on May 7.

Yet the withdrawal would seem to make that strategy less likely.

The Grayscale Bitcoin Trust ETF (GBTC) currently has $18 billion in assets, despite bleeding billions. That fund carries a 1.5% fee, though—the highest among spot bitcoin ETFs. 

Contact Lucy Brewster at [email protected].