SEC hints at last-second approval of Ethereum ETFs, but ‘no issuer is ready’

This seemed like an almost certain rejection on the part of the Security and Exchange Commissionbut just hours before the May 23 deadline to rule on VanEck’s request to launch an Ethereum spot exchange traded fundit appears the SEC may reconsider its decision.

CoinDesk first reported On Monday, the nine potential issuers that filed to list and trade ETF shares were “abruptly” asked by regulators to update their 19b-4 filings on an expedited basis. A Form 19b-4 is what an exchange like the NYSE needs for new product introductions. In other words, the applicants and the exchange ask the SEC for permission to add the ETFs to their platforms.

Since the rumors began circulating Monday afternoon, the price of Ether has climbed nearly 20%, trading at nearly $3,750 around 1:30 p.m. ET on Tuesday.

Since VanEck is the first exchange to file, its approval would hypothetically be a green light for others waiting to hear about their own 19b-4s. As rumors began to circulate on Monday about the evolution of the applications, Bloomberg analysts updated their ratings from 25% to 75% approval.

But the news sent transmitters scrambling. Every issuer Bloomberg ETF analyst James Seyffart spoke with was “caught off guard by the SEC’s 180-degree pivot,” he told Fortune. The agency contacted filers for feedback and requested updates just three days before the deadline, he said.

“This is not a standard operating procedure, and everyone from issuers to exchanges to lawyers to market makers and more are scrambling to be ready for possible approval and to respond SEC requirements,” adds Seyffart. The rushed nature of the pivot suggests it was likely a “political decision,” the result of a “top-down decision” by the Biden administration, he speculates. “No transmitter is ready,” he wrote on X.

So far, Grayscale is the only potential issuer to post an update 19b-4 on the New York Stock Exchange website, for its transfer request to its Ethereum Mini Trust ETF. Meanwhile, Fidelity has abandoned plans to place Ether in its ETF, according to a S-1 Update filed with the SEC early Tuesday. In previous filings, the company said it intended to “stake a portion of the trust’s assets” with “one or more” infrastructure providers, but now it “will not stake the trust’s assets.” ‘Ether’ stored with the custodian.

Staking involves staking Ether to secure the network in exchange for a yield, which is currently around 3%, according to data from staking service Lido. Ark and Franklin Templeton also considered staking in their applications. In today’s 19b-4 update from Grayscale, the company confirmed that it will not participate in staking. Grayscale bringing this to the forefront and Fidelity omitting it suggest that the SEC could have sought a ban on staking. Vance Spencer, co-founder of Framework companiestold Fortune that he believes the SEC’s last-minute requests included guidance on staking.

The staking of the underlying Ether in the ETF has been seen as a reason why the SEC could reject the applications, with Chairman Gary Gensler expressing concerns last March that digital assets using staking protocols staking could be considered securities under federal law. Staking Could Be “A Significant Complication,” Bitwise CIO Matt Hougan Says previously said Fortune.

However, even if the SEC approves VanEck’s 19b-4 on Thursday, it does not guarantee clearance because exchanges will need S-1 applications from issuers before the products begin trading. When applying to launch a new security, an S-1 is the form that describes to potential investors and the SEC the structure of the asset, how it will be managed and, in this case, how it plans to reflect the performance of the underlying asset: Ether tokens.

But approval of S-1s could take “weeks, even months”, Seyffart written the. “That said, if we’re right and we see these theoretical approvals later this week. This should mean that S-1 approvals are a matter of “when,” not “if.”

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