(Bloomberg) -- Investment companies hoping to launch the first exchange-traded funds based on the Ether cryptocurrency are bracing for disappointment since the Securities and Exchange Commission has yet to signal it’s prepared to green light the products.

After months of silence, the US regulator is poised to announce a decision on at least one application for an ETF that invests directly in Ether, the second-largest cryptocurrency, by next week. Some fund companies expect a rejection because their private dialog with the SEC hasn’t been as robust as it had been prior to the approval of spot-Bitcoin ETFs in January, according to two people familiar with the matter, who asked not to be named discussing private conversations.  

During the final weeks before the regulator green-lit the Bitcoin ETFs, fund companies submitted several versions of amended paperwork to help address issues brought up by the SEC, which helped pave the way to their approval. There has been far less activity with spot-Ether ETF filings.

“Most people are universally expecting a disapproval order,” said Katherine Dowling, general counsel for Bitwise, which filed for a spot-Ether ETF in March. “You’re not seeing the types of public activities that you would see if there was going to be an approval.” 

After deferring decisions on applications for the funds over the last several months, the SEC has a May 23 deadline to approve or deny an application from VanEck. Ether dropped nearly 20% in April as hopes for approval dimmed. Ether is the native token of Ethereum, the most commercially-used blockchain, which allows users to run applications on top of the protocol.     

A spokesperson for the SEC declined to comment. 

SEC Chair Gary Gensler has signaled that one feature of Ethereum software, known as staking, could lead to Ether falling under the SEC’s jurisdiction as a securities regulator. Such a determination would trigger a rash of compliance and investor protection rules, which many in the crypto industry say are ill-suited for digital assets. It’s unknown whether the ETF decision will offer insight on the SEC’s view on Ether’s staking mechanism, in which holders lock their tokens on the blockchain to help validate transactions and earn a yield in return. 

In March, people familiar with the matter said the SEC has demanded information from companies about dealings with the Ethereum Foundation, the group supporting the blockchain’s ecosystem, as part of a review of aspects of Ether. 

The SEC could also shine light on the market dynamics between the Ether spot and futures markets. Issuers may need to successfully prove the correlation between the pricing of Ether in the spot and futures markets and establish that the cryptocurrency can’t be manipulated without perpetrators getting caught. 

Executives at Coinbase Global Inc. met with the SEC in March, telling the regulator that Ether’s spot markets are “highly indicative” of their resilience to fraud and manipulation. It’s unclear whether the SEC will be satisfied by the correlation analysis. 

Ultimately, a rejection may open up the door for lawsuits. An August legal victory by Grayscale Investments in its case against the SEC paved the way for the January approval of spot-Bitcoin funds. 

“If the SEC disapproves of the Ether ETFs now, it may be because the line the SEC is drawing is that they won’t approve any spot crypto product without a literal court order,” said Jeremy Senderowicz, a lawyer specializing in investment services at law firm Vedder Price. 

Regardless of whether or not funds are approved, it will be the first time that the SEC will publicly offer substantial insight on their stance on spot-Ether ETFs. Even among issuers who are pessimistic the regulator will approve the product, that’s a silver lining for some since it will provide tangible insight on the regulator’s thinking regarding the products. 

“You’ll have something to respond to,” said Dowling, the Bitwise lawyer. “Right now everything is just conjecture,” 

--With assistance from Lydia Beyoud.

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