Kaiko Says Chances for XRP ETF ‘Very Slim’ Highlights Regulatory Hurdles

Following the application for an XRP exchange-traded fund (ETF) by Bitwise earlier in October, the price of XRP has been struggling to take off. XRP was priced at US$0.66 (AU$0.97) at the close of the last month and corrected by almost 20%, currently trading for US$0.53 (AU$0.78).

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The culprit for the mediocre price performance? Most likely the news that the US Securities and Exchange Commission (SEC) is going to appeal a judgement in the crypto-saga SEC vs Ripple – even the positive news about the ETF application couldn’t jumpstart price.

Kaiko: ETF Approval Difficult Due to SEC Stance

To make matters worse for battle-weary XRP holders, the chances for approval of an XRP ETF anytime soon seem to be slim. Analysts at Kaiko cited in a recent note the SEC and the ongoing legal tussle with Ripple as main reasons why the ETF might not get approved.

Additionally, due to the SEC’s process and concerns over market manipulation, the chances for Grayscale’s fund to move to ETF status are also low.

Grayscale recently introduced an XRP trust, likely aiming to eventually convert it to an ETF, a development Kaiko also commented on:

Currently Grayscale’s chances of taking the leap from a private placement to a spot XRP ETF are very slim.  When it comes to creating structured products out of crypto assets the SEC’s overarching concern is market manipulation.

Kaiko

Private placements are a way for fund managers to offer investment products, such as trusts that hold cryptocurrencies like XRP, to accredited investors or institutional clients. With private placements, there’s no need for the same level of regulatory disclosures and oversight as required for publicly traded securities, such as an exchange-traded fund.

No Future Without Futures?

The analysts argue that it’s difficult for issuers to prove to the SEC that they have safeguards in place to avoid fraud and price manipulation when the trading of these funds/ placements “happen offshore on unregulated venues, and out of its jurisdiction”.

Although Grayscale successfully sued the SEC to approve its spot Bitcoin ETF, this approval came after they had already established a futures fund, setting a precedent that might not apply to XRP due to its different market conditions.

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Not everyone agrees though; SEC Commissioner Hester Peirce has recently weighed in on this topic. Asked by Tony Edward during a podcast what the thought process is for having a futures market before a spot approval, she said, “It depends”.

It depends on the particular product that you’re looking at. Having the futures market for Bitcoin enabled us […] to understand something about the underlying market.

Hester Peirce, SEC Commissioner

She added that it is possible to have a spot ETF without a futures market, although it helps to have one as reference. 

That doesn’t necessarily need to be a condition. But that makes ETH and Bitcoin look more alike.

Hester Peirce, SEC Commissioner

She said, ultimately it comes down to the individual “facts and circumstances” – meaning we’ll have to wait and see how things go for Bitwise and Grayscale.