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Established asset management firm Fidelity has submitted an S-1 application for its proposed spot Ethereum exchange-traded fund (ETF), according to a filing with the U.S. Securities and Exchange Commission (SEC).
Staking Ethereum has generated headlines in the ongoing legal battle between Coinbase and the SEC.
Is An ETH EFT Next?
As the filing notes, the Fidelity Ethereum Fund (Trust) will trade on the CBOE BZX Exchange if approved. Fidelity has chosen Fidelity Digital Asset Services as the fund’s custodian.
The Trust plans to implement a staking program for a portion of its ETH holdings. However, Fidelity states that staking would come with risks of losing ETH through penalties or temporary inaccessibility.
“Staking activity comes with a risk of loss of ether, including in the form of “slashing” penalties. Additionally, as part of the “activating” and “exiting” processes of ether staking, any staked ether will be inaccessible for a period of time determined by a range of factors, resulting in certain liquidity risks that the Sponsor [FD Fund Management] will manage,” wrote the document.
Plus, staking rewards can be considered taxable income by the IRS. However, the fund might not necessarily distribute those earned staking rewards directly to investors.
The filing also details several risk factors associated with the Trust, including Ethereum’s price volatility, technical risks, governance challenges, and unforeseen issues with upgrades and forks, among others. One of the major concerns is the regulatory approach to Ether in the U.S. and other regions.
Ethereum’s legal status remains unclear under US jurisdiction. There are mixed stances on this matter. The Commodity Futures Trading Commission (CFTC) considers Ether a “commodity;” the agency recently reiterated this claim in KuCoin’s recent legal document.
Meanwhile, the SEC allegedly seeks to classify Ether as a security. The agency was said to have launched an investigation into the Ethereum Foundation as part of its regulatory campaign to put the cryptocurrency under this classification. However, no further details about the investigation have been confirmed.
The filing also points to the 51% and Denial-of-Services attacks, which could threaten the Ethereum network and negatively impact its value. The 51% attack has long been discussed, especially after the Merge. Crypto members have repeatedly warned of the centralized power of staking pools like Lido on the staked Ether.
Spot Ethereum ETFs Might Face Pushback
Fidelity, BlackRock, and seven other firms are waiting for the SEC’s decision on their spot Ethereum ETF filings. However, progress toward the final verdict appears to have stalled.
Earlier this month, the SEC decided to postpone its decision on Fidelity and BlackRock’s applications. Meanwhile, the agency hasn’t left many comments on the review process, which is considered different from spot Bitcoin ETFs.
Bloomberg ETF analyst James Seyffart predicts that the current lack of interaction between the SEC and the ETF providers could result in the rejection of spot Ethereum ETFs. His counterpart, Eric Balchunas, had previously reduced approval odds to 35%, a quite humble percentage compared to his estimates of spot Bitcoin ETF approval.
On the other hand, BitMEX founder Arthur Hayes and Grayscale’s Chief Legal Officer Craig Salm think differently. These two prominent figures are still bullish on potential approval for the spot Ethereum fund.
Arthur Hayes said in an interview with The Wolf of All Streets that the success of Bitcoin ETFs could pave the way for similar ETFs for Ethereum and Solana. He believes banks will support these due to the profits from fees.
While not taking the same perspective, Craig Salm also believes that approval is positive. He argues that the SEC’s experience with spot Bitcoin ETFs can be applied to Ethereum ETFs, despite the SEC’s perceived lack of public engagement.
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