On Thursday, the SEC approved a rule change that will enable ETFs to buy and hold ether, one of the largest cryptocurrencies globally.

This decision comes less than six months after the SEC approved bitcoin ETFs, which have been highly successful, with net inflows exceeding $12 billion, according to FactSet.

Late May had been anticipated as a potential decision date for ether funds because it coincided with the SEC's deadline to decide on the VanEck Ethereum ETF.

Many companies that sponsor bitcoin ETFs, including BlackRock, Bitwise, and Galaxy Digital, have also begun the process of launching ether funds.

Ether's price rose by only 2%, following a 20% increase earlier in the week in anticipation of Thursday's decision. Some investors may be hesitant, as the SEC's approval of the rule change does not guarantee that all the funds will launch.

Specifically, the SEC's order approves applications from various exchanges to list eight different ether funds. The order does not technically approve the funds themselves or set a start date for the ETFs to begin trading.

Initially, ether ETFs are expected to be smaller than their bitcoin counterparts. The Grayscale Ethereum Trust currently holds about $11 billion in assets, significantly less than the firm's bitcoin fund prior to its conversion.

The approval of ether ETFs suggests that the SEC's stance on crypto might be softening following several legal battles. The agency lost a lawsuit against Grayscale in 2023, which led to the approval of bitcoin products.

The SEC's efforts to regulate crypto have also faced scrutiny from politicians. Last week, the Senate passed a resolution to withdraw an SEC staff bulletin concerning accounting rules for digital assets.

Ether is the second-largest crypto asset and is considered a blue-chip coin alongside bitcoin, though its value proposition is different. While bitcoin is mainly seen as a long-term store of value, ether is viewed more like an investment in early-stage technology. The ether token powers the Ethereum network, which supports various applications such as decentralized finance (DeFi) projects, non-fungible tokens (NFTs), and the tokenization of real-world assets like commodities, securities, art, real estate, and more.

The applications approved Thursday do not extend to other crypto projects on the Ethereum network, said Richard Kerr, a partner at the law firm K&L Gates.

"If and when an ether product is approved, it won’t mean that a similar product for other digital assets on the Ethereum platform would be approved," Kerr stated.

Ethereum also offers staking opportunities, allowing investors to earn interest on their ether holdings by locking up tokens on the network for a period of time. However, ether ETFs in the U.S. may not participate in staking. The SEC has alleged in lawsuits against Coinbase and Kraken that staking-as-a-service offerings are unregistered securities. Ark, Fidelity, and Grayscale updated their filings this month to exclude staking from their proposals.

The absence of staking in ETF products is another reason ether ETFs may attract less demand than bitcoin ETFs, said Steven Lubka, managing director at Swan Bitcoin and head of Swan Private.

"These numbers are not going to match the bitcoin ETF inflows, and there are some structural differences in the product that just make it less attractive overall," Lubka commented.