Fidelity, the asset manager, has recently filed a 19b-4 with the Securities and Exchange Commission (SEC) for a spot ethereum exchange-traded fund (ETF). This proposed ETF aims to provide U.S. investors with a regulated and secure option to gain exposure to the world’s second-largest cryptocurrency. Currently, investors are limited to over-the-counter ether funds with high fees and volatile premiums or discounts. Fidelity’s filing emphasizes that the approval of a spot ethereum ETF would greatly enhance investor protection in the crypto space, reducing risks associated with existing ether funds. The proposed ETF would hold physical ethereum tokens and track the Fidelity Ethereum Index, providing exposure to ether’s daily price movements. With this move, Fidelity joins other industry giants like Blackrock in their efforts to introduce a spot ether ETF, signaling the growing interest and potential for cryptocurrency in the mainstream market.

Fidelity Files 19b-4 for Spot Ethereum ETF

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Fidelity’s Latest 19b-4 Filing Highlights Spot Ethereum ETF

Fidelity has filed a 19b-4 with the Securities and Exchange Commission (SEC) to list a spot ethereum exchange-traded fund (ETF) on the Cboe BZX Exchange. The proposed ETF would hold physical ethereum (ETH) tokens and seek to track the Fidelity Ethereum Index, providing exposure to ether’s daily price movements.

Limited Options for U.S. Investors’ Ethereum Exposure

The Fidelity Ethereum Fund aims to launch as a U.S.-regulated spot ETF for the second-largest cryptocurrency by market capitalization. Fidelity’s 19b-4 filing says currently, the options for U.S. investors’ ethereum exposure are limited to over-the-counter (OTC) ether funds carrying high fees and volatile premiums or discounts.

Reducing Risks Associated with Existing Ether Funds

Fidelity contends approval of a spot ETF would represent a major win for investor protection in the crypto space by reducing risks associated with existing ether funds. The 19b-4 filing emphasizes the importance of protecting investors against the risk of losses through fraud and insolvency that arise by holding digital assets, including ETH, on centralized platforms.

Comparable Rationale to Blackrock’s Latest Submission

The 19b-4 account bears resemblance to Blackrock’s latest submission for a spot ether ETF, echoing comparable rationale. The filing highlights the significance of approving a spot ETH ETF for the protection of U.S. investors in the crypto asset space.

Proposed ETF Pricing Mechanism

The proposed ETF’s pricing mechanism would be similar to CME Ether futures and utilize price feeds from major spot exchanges. Fidelity argues this should satisfy the SEC’s standard requiring surveillance-sharing agreements with a regulated market of significant size. The filing cites recent court decisions stipulating the CME futures market meets this standard for spot bitcoin ETFs.

Direct Holding of Ether in Cold Storage

Fidelity’s proposed spot ethereum ETF would directly hold ether in cold storage to eliminate counterparty risks. This approach aims to provide investors with greater security and protection by storing the assets offline, reducing the chances of hacking or theft.

Value Shares Daily Based on Spot Price Index

The proposed ETF would value shares daily based on a spot price index. This would provide investors with an accurate reflection of the market value of the underlying ethereum assets, allowing for more transparency and accurate pricing.

Exchange of Ether for Share Creations/Redemptions

Authorized participants would be able to exchange ether for share creations and redemptions directly with the fund. This process would be facilitated through the use of “Creation Baskets,” which involves the exchange of blocks of ether for shares in the ETF. This mechanism allows for efficient and seamless creation and redemption of shares.

Alignment with Other Companies’ Spot Ethereum ETF Applications

In tandem with Blackrock, Fidelity aligns with Ark Invest, 21shares, and Vaneck in its endeavor to introduce a spot ether ETF. These companies recognize the potential of ethereum and the demand from investors for regulated investment products that provide exposure to this digital asset.

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Fidelity’s Next Steps

Fidelity has filed a 19b-4 for record keeping purposes and will likely follow up with an S-1 form to register their product with the SEC. By taking these steps, Fidelity aims to ensure compliance with regulatory requirements and provide investors with a regulated and transparent investment vehicle.

Opinions and Thoughts

The filing by Fidelity for a spot ethereum ETF is seen as a positive development for the crypto space and for U.S. investors. It offers an alternative investment option to traditional ethereum funds, while also mitigating risks associated with these existing investment vehicles. The proposed ETF’s alignment with other companies’ spot ethereum ETF applications further supports the growing demand for regulated investment products in the crypto space.

Overall, Fidelity’s filing represents progress towards the introduction of a spot ethereum ETF, providing investors with an opportunity to gain exposure to the second-largest cryptocurrency by market capitalization. As the crypto market continues to evolve and mature, regulated investment products like ETFs can play a crucial role in facilitating broader participation and investor protection.

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