Regulators have granted permission to the NYSE and Nasdaq to list eight exchange-traded funds (ETFs) that hold ether (ETH-USD). However, they have yet to approve money managers who wish to issue these new products.

This decision by the Securities and Exchange Commission (SEC) is a preliminary step towards enabling the ETFs to trade. The SEC still needs to approve S-1 forms from money managers, which are necessary filings for publicly offering new securities, before the funds can begin trading. The SEC did not specify a timeline for when these approvals might occur.

These ETFs could potentially integrate ether into 401(k)s, IRAs, and pension plans, thereby increasing mainstream acceptance of the digital asset. This decision follows approximately four months after the SEC approved ETFs that invest directly in bitcoin (BTC-USD). The group seeking approval for ether ETFs includes prominent Wall Street firms such as BlackRock, Fidelity, and Franklin Templeton, as well as crypto-focused firms like Grayscale, Bitwise, and Hashdex.

Market implications This week, ether's price increased as investor anticipation for the ETF approvals grew. It experienced a 2% drop on Thursday before rebounding shortly before the SEC's announcement. Year to date, ether is up over 50%, outperforming bitcoin.

This development highlights the crypto industry's progress in advocating for more favourable regulations and the ability to launch new products. On Wednesday, the US House of Representatives passed a bill aiming to reduce the SEC's influence over crypto and establish the Commodity Futures Trading Commission (CFTC) as the primary regulator for the sector. This bill still requires Senate approval.

The White House has expressed opposition to the bill in its current form but is open to collaborating with Congress on creating new regulations for digital assets. The SEC's recent approvals are notable given the agency's historical resistance to the crypto industry, marked by enforcement actions and lawsuits. For years, the SEC denied applications to create spot ETFs tied directly to cryptocurrencies.

Legal and industry context A pivotal moment occurred in August 2023 when Grayscale won a legal battle against the SEC. Grayscale had sued the SEC in 2022 after being denied permission to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin offering. The court ruled in favor of Grayscale, stating the SEC had acted ‘arbitrarily and capriciously.’ This court decision prompted the SEC to reconsider applications for spot bitcoin ETFs from Grayscale and other money managers.

When the SEC approved bitcoin ETFs in January, SEC Chair Gary Gensler emphasized that the agency did not endorse bitcoin but sought a sustainable path following the court's decision. Recent indications of impending ether ETF approvals surfaced as SEC staff provided feedback to exchanges planning to list these products. The SEC requested that applicants revise their products to prevent staking of ether held by issuers to earn additional yield.

Future prospects Ether has a market capitalization exceeding USD 450 billion, accounting for about 18% of the total crypto market value. It is the native cryptocurrency for the Ethereum blockchain, which uses a proof-of-stake verification system. Unlike bitcoin, ether has not been classified as a non-security asset by the SEC.

For the crypto market, the approval implies that there could be future ETFs for other crypto assets, as long as they meet the criteria set by the SEC, according to Sean Farrell, head of crypto strategy at Fundstrat. .