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Fidelity Modifies Spot Ethereum ETF Plan: Opts Out of Staking

2 mins
Updated by Harsh Notariya
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In Brief

  • Fidelity revises Ethereum ETF plan, removes staking feature amid regulatory uncertainties in new SEC filing.
  • The Trust won’t stake Ethereum or invest in derivatives, ensuring a simplified investment strategy.
  • Speculation grows about SEC's stance on Ethereum ETFs, with increased approval odds from analysts.
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Fidelity Investments has revised its upcoming spot, Ethereum exchange-traded fund (ETF), notably removing the staking feature.

This modification, detailed in the latest S-1 filing with the US Securities and Exchange Commission (SEC), reflects a strategic shift in response to regulatory uncertainties.

Why Fidelity Removed Staking Facility?

The filing states that the Trust will neither stake the Ethereum it holds nor invest in derivatives. Designed to provide a simple and efficient avenue for Ethereum investment, the ETF avoids the complexities of direct crypto transactions. Fidelity clarified that it would not participate in the Ethereum network’s proof-of-stake validation mechanism.

Emphasizing the passive investment strategy, the Trust declared that shareholders will play a minimal role in its management. Shareholders will also lack voting rights in most situations.

Read more: Ethereum ETF Explained: What It Is and How It Works

Regarding asset custody, the Ethereum will be securely stored in segregated accounts. Most of these assets will be in cold storage to maximize security, with a minor portion in hot storage to facilitate operational efficiency.

This is a pivot from Fidelity’s S-1 filing in March 2024. Back then, the asset manager planned to include the staking facility in its spot Ethereum ETF.

This strategic change coincides with growing speculation about the SEC’s approach to Ethereum ETFs, especially those that include staking.

“If the speculation about a 180 from SEC on the Ethereum ETFs is true, I would guess they try to thread a needle between “ETH” NOT being a security and “staked ETH” as being a security. That would allow SEC to approve Ethereum ETFs while maintaining their previously stated opinions,” Alex Thorn, the Head of Research at Galaxy Digital said.

However, without staking facilities, ETF investors cannot earn the extra yield that is possible through participation in the proof-of-stake validation mechanism. Crypto-savvy investors might prefer Ethereum’s self-custody and stake on various decentralized platforms rather than investing through ETFs.

Nonetheless, if the SEC approves spot Ethereum ETFs, it would be a milestone, representing the amalgamation of altcoins with the traditional finance market.

Read more: How to Invest in Ethereum ETFs?

Amid these regulatory deliberations, optimism is rising regarding the likelihood of spot Ethereum ETF approvals. This is because Bloomberg ETF analysts Eric Balchunas and James Seyffart have increased their approval probability from 25% to 75%.

Moreover, Standard Chartered analyst Geoff Kendrick believes there are 80-90% odds that the SEC will approve Ethereum ETFs, this week. He predicts these ETFs will attract inflows worth $15 billion to $45 billion in the first 12 months.

“As a percentage of market cap, it is similar to our estimates of inflows to bitcoin ETFs, which are proving accurate,” Kendrick said.

For context, BlackRock’s iShares Bitcoin (IBIT) received $15 billion worth of inflows within the first three months of trading.

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Harsh Notariya
Harsh Notariya is a journalist at BeInCrypto, who writes about various topics, including decentralized physical infrastructure networks (DePIN), tokenization, crypto airdrops, decentralized finance (DeFi), meme coins, and altcoins. Before joining BeInCrypto, he was a community consultant at Totality Corp, specializing in the metaverse and non-fungible tokens (NFTs). Additionally, Harsh was a blockchain content writer and researcher at Financial Funda, where he created educational reports on...