Fidelity Amends Ethereum ETF Application to Include Staking

While Fidelity is exploring including staking to its ETH ETF, the verdict of whether these ETFs will even be approved in the first place is still out.

Fidelity has updated its proposal for a spot Ether ETF with plans to engage in staking to generate more income for investors. Despite the competitive market for Ether staking and the skepticism surrounding the approval of ETH ETFs by the SEC, Standard Chartered Bank is still very optimistic, predicting potential approval by the May 23 deadline. However, Bloomberg ETF analyst Eric Balchunas has lowered the likelihood of approval to just 35%, pointing out the SEC's silence and concerns over SEC Chair Gary Gensler's view of Ether as a security.

Fidelity Updates Ethereum ETF Proposal

Financial services behemoth Fidelity is exploring the possibility of staking a portion of the Ether held by its proposed spot Ether exchange-traded fund (ETF), in an effort to generate additional income for investors. This plan was revealed in a 19b-4 amendment filed with the United States Securities and Exchange Commission (SEC) on Mar. 18.

The filing indicates Fidelity's intent to engage one or more trusted staking providers for this purpose, though it stops short of naming any specific providers. The market for Ether staking is quite competitive, with major players like Lido DAO, RocketPool, and StakeWise offering these services.

After the announcement, the price of Lido DAO experienced a brief surge before settling down. CoinMarketCap data indicated that LDO was worth about $2.31 after its price dipped by more than 12% throughout the past 24 hours of trading. This price drop is nothing too severe as it certainly reflects the bloodbath seen in the crypto market over the past 24 hours.

Fidelity's move comes as part of a larger trend among fund issuers to include staking in their Ether ETF proposals, with Ark 21Shares and Franklin Templeton also among those who are looking to capitalize on this strategy to enhance returns for investors. These proposals are part of a batch of applications from eight issuers, including industry giants like BlackRock, ARK Invest, and Grayscale, all vying for SEC approval. However, the deadline for the SEC's decision is looming, with a final date set for May 23. Should the SEC fail to approve these applications by then, all issuers will be required to refile their proposals again. Unfortunately, the outlook for approval has dimmed quite a bit in recent months.

Standard Chartered Predicts Ethereum ETF Approval by May

Despite the skepticism about ETH ETF approvals running rampant in the crypto community, Standard Chartered Bank still holds an optimistic view that these ETFs could be approved by the May 23 deadline. Geoffrey Kendrick, the head of forex and crypto research at Standard Chartered Bank, expressed his confidence in the potential approval of these ETFs, diverging from the consensus view. He anticipates that, upon approval, the ETFs could attract $15-to-$45 billion in inflows in just the first year, drawing parallels to the influx seen with Bitcoin ETFs.

This optimistic stance could certainly hold some merit considering the SEC's historical non-classification of ETH as a security in legal actions against crypto companies, as well as the recent announcement from the London Stock Exchange about the acceptance of applications for exchange-traded notes backed by Bitcoin and Ethereum. Kendrick believes these developments could increase the likelihood of the SEC approving Ethereum ETFs by the May deadline.

Kendrick remains steadfast in his view despite other experts in the crypto space not completely agreeing with his views, predicting that the approval of spot Ethereum ETFs will catalyze huge capital inflows into the Ethereum market.

SEC's Silence Casts Doubt on Ether ETF Future

On the other hand, the future of ETH ETFs in the United States is looking increasingly uncertain, according to Bloomberg ETF analyst Eric Balchunas. He has revised his estimate for the likelihood of Ether ETF approvals by May down to just 35%. He pointed out the very notable silence from the SEC towards ETF issuers as one of his main concerns, highlighting that the absence of feedback or communication from the SEC is definitely not a promising sign. This lack of interaction is crucial because the approval process typically involves a back-and-forth between the SEC and issuers to address any concerns or required adjustments.

Balchunas also pointed to SEC Chair Gary Gensler's views on Ether as a complicating factor. Gensler's belief that Ether is a security, as opposed to a commodity like Bitcoin, could certainly be influencing the SEC's hesitance. This is compounded even more by Gensler's experience with the political fallout after the approval of spot Bitcoin ETFs and a legal defeat to Grayscale in August of 2023. Balchunas strongly believes Gensler's current position makes him way less inclined to extend further concessions to the crypto industry.

The ETF analyst also noted a difference in the atmosphere surrounding the Ether ETF approval process compared to the race for spot Bitcoin ETFs, which felt more positive and increasingly likely over time. This time, the sentiment appears to be moving in the opposite direction.

Comments from industry insiders reflect some mixed perspectives. Nate Geraci, the president of the ETF Store, found it strange that the SEC would approve futures-based products but not spot Ether ETFs, while Matt Corva, general counsel at Consensys, suggested that a denial could, paradoxically, be beneficial in the long run for the broader crypto market.

Recent meetings between Coinbase, Grayscale, and SEC officials, primarily focusing on the correlation between ETH and BTC futures and spot prices, have not necessarily been interpreted as a positive sign for approval. Instead, Balchunas agreed with the analysis that this could lean towards a denial.

Looking forward, Balchunas indicated that the upcoming U.S. presidential election on Nov. 5 could be a major next milestone for the Ether ETF approval process, depending on the outcome and potential changes in the SEC's leadership or direction.

Despite the current uncertainties, Balchunas remains optimistic about the eventual approval of a spot Ether ETF, though the timing is still a bit unclear.