ARK Invest and 21Shares have recently updated their Ethereum (ETH) exchange-traded fund (ETF) proposal, opting to exclude the crypto staking feature. This decision came after discussions with the U.S. Securities and Exchange Commission (SEC), leading to a significant modification in the fund’s operational structure.

Transition to a Cash Creation Model

The firms have shifted from an in-kind redemption model, which involved non-monetary payments like Ether, to a cash creation model. In this model, ARK Invest and 21Shares will purchase Ether in amounts corresponding to incoming orders and deposit these with a custodian to facilitate the creation of ETF shares. This change aligns the Ether ETF more closely with the structures seen in recently approved Bitcoin ETFs.

Implications of the Updated Filing

The amendment to their ETF proposal, documented on February 7, 2024, removes previous references to staking Ether through third-party providers. The initial plan included earning ETH rewards from staking, which would be classified as income for the fund. However, the updated document focuses solely on a cash-based creation process without involving any staking activities.

“Here we go again,” commented Eric Balchunas, a crypto analyst at Bloomberg, reflecting on the continuous updates and regulatory alignments in the cryptocurrency ETF space.

The revised filing still covers broader discussions on potential risks, such as losses from slashing penalties and temporary inaccessibility of funds, which could affect Ethereum’s market price.

Regulatory Landscape and Market Response

The SEC is currently reviewing several spot Ether ETF proposals, including those from major financial institutions like Invesco, Grayscale, Franklin Templeton, VanEck, and BlackRock. These reviews are critical as they will influence the level of institutional participation and mainstream acceptance of Ether as an investable asset.

Notably, Fidelity and Grayscale have incorporated staking features into their Ethereum ETF applications, aiming to leverage the income-generating potential of staking within a regulated framework. This strategy not only taps into new revenue streams but also provides investors with exposure to Ethereum’s staking rewards.

Despite the potential benefits, U.S. lawmakers and the SEC are closely scrutinizing these crypto ETFs to balance investor protection with the innovative opportunities presented by cryptocurrency staking.

With key decisions pending, such as the rulings on VanEck’s and ARK/21Shares’ spot Ethereum applications due on May 23 and May 24 respectively, the outcomes could significantly impact the cryptocurrency investment landscape.

For more updates and detailed analyses on this topic, keep following Global Crypto News.

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