The Ether ETFs Are Causing Controversy

To investors,

The SEC approved important rule changes for various traditional exchanges yesterday which will allow them to list spot Ether ETFs in the near future. This is another step towards Wall Street allocating to the second largest crypto asset in the world.

It is important to call out that the actual ETF applications from various issuers have not yet been approved, but it is now obvious that the SEC is going to allow the Ether ETFs to be traded. That is the most important part.

Given that the exchange rule changes have been approved, but the individual funds have not yet been approved, there are some interesting nuances that have been introduced.

First, prediction markets are causing some controversy between their users. Polymarket had a prediction market for the approval of the Ether ETF. When the SEC approved the rule changes, people who had bet that the SEC would approve the ETF funds began celebrating. But the people who had bet against the ETF approval claimed that the rule changes were not a technical approval of the ETFs themselves.

I tend to agree with the people arguing that the actual ETFs have not technically been approved, yet the spirit of the prediction market is obvious that people were betting on a broader yes/no from the SEC. Regardless of my thoughts, Polymarket has ruled that the recent developments from the SEC is enough to give the “yes” bettors the victory. You can see the odds change on this chart and then read the clarification provided by Polymarket below.

The second controversy that has been spun up is whether the SEC should approve all eight ETF applications simultaneously or if they should approve the applications in the order that they were filed. Historically, the SEC has created an unspoken rule of “first application in, first application approved.”

This changed recently when the SEC approved all spot bitcoin ETFs at the same time. In my opinion, the approval of so many applications simultaneously creates a more free market, which means that the market is ultimately the referee on where capital will flow.

With this said, it is not lost on me that the incentive for people to file for ETFs early is that they could be listed first. Incentives are essential to capital markets, so this situation is not as clear as simply saying “make it fair!”

Matthew Sigel, VanEck’s Head of Digital Asset Research, said the following:

“The SEC has long followed a first-come, first-served approach when it comes to approving financial products, including ETFs. This method is seen as fair and predictable, allowing issuers to plan their product launches based on a clear understanding of the regulatory timeline, and incentivizing innovation by letting risk-takers potentially profit.

Any break this in longstanding precedent not properly communicated to the market undermines the first-mover advantage and competitive fairness, and possibly conflicts with existing rules and laws such as the Administrative Procedure Act (APA), which governs the process by which federal agencies develop and issue regulations. The APA requires that the process be fair and transparent.

Why is this a big deal?

It creates an uneven playing field for issuers who filed earlier and had to wait longer. Those who filed months ago had to keep their applications updated and compliant for a longer period, incurring more costs and legal fees compared to later filers.

It sets a concerning precedent of the SEC appearing to make ad-hoc decisions based on external factors rather than following established procedures.

Filing FIRST used to mean something, but now it seems the US government is keen to pick winners at an unprecedented scale. Property rights cannot exist without a clear order. A queue may seem but a small act of respect, but it upholds a much larger principle of equity and innovation. Respect the queue, and you respect ownership itself.

We filed first, we should list first.”

Regardless of who is listed first, it is clear that the Ether ETFs are inbound. I’ll be watching to see how much attention and capital flows they receive. My guess is that we won’t see anything close to the Bitcoin spot ETF inflows, but I was surprised by how large and fast capital came into those funds. Hopefully I don’t make the same mistake twice here.

Have a great Memorial Day weekend. I’ll talk to everyone on Tuesday.

-Anthony Pompliano

Jack Mallers is the Founder & CEO of Strike.

In this conversation, we talk about the macro environment, the edge case, use case, investment case for bitcoin, bitcoin vs shitcoins, politics, regulation, and why he believes Wall Street will capitulate and all become bitcoiners.

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