Fidelity, the asset management giant, has submitted a revised application to the United States Securities and Exchange Commission (SEC) for its Ether exchange-traded fund (ETF). The updated application clarifies that the underlying Ether tokens will not be staked. S-1 filings are required by the SEC for publicly traded securities products in the US.
This amended filing comes after reports of a U-turn by the SEC on spot Ether ETFs, potentially due to political pressure. It is reported that the SEC has requested ETF issuers to update their 19b-4 filings. The deadline for VanEck’s Ether ETF proposal is May 23, and Bloomberg ETF analyst Eric Balchunas has increased the chances of approval to 75% from 25%, but this only applies to the 19b-4 form. However, Ether ETF issuers will still need approval for their S-1 filings, according to Bloomberg ETF analyst James Seyffart.
The SEC has previously attempted to classify Ether as a security, and Ethereum’s transition to proof-of-stake (PoS) may provide another reason for the regulator to do so. SEC Chair Gary Gensler reportedly mentioned during a Senate Banking Committee hearing in 2022 that cryptocurrencies and intermediaries that allow staking could be classified as securities under the Howey test.
Despite the SEC’s U-turn on Ether ETFs, staked Ether may still be classified as a security, according to Alex Thorn, head of research at Galaxy Research. Thorn stated that Fidelity initially filed the S-1 application on March 27, indicating its intention to stake a portion of the fund’s ETH supply. The initial application highlighted the additional risks associated with staking, such as potential loss through slashing penalties and liquidity risks during the staking process. Staking rewards would also be considered income for the fund for tax purposes, resulting in a taxable event for investors without a corresponding distribution from the Trust.