With the first nod for Ether ETFs from Hong Kong’s financial regulator, the buzz around this topic has risen. The anticipation surrounding the approval of spot Ethereum ETH remains high. However, recent developments, including revised analyst predictions and regulatory delays, have cast doubt on the likelihood of approval. In this article, you will get to know about the analyst’s insights and regulatory challenges surrounding the approval of spot Ethereum ETF.
What is Spot Ethereum ETF?
A spot Ethereum ETF is an exchange-traded fund designed to track the current price of Ethereum. The institution managing the spot Ethereum ETF ensures that for each spot ETF sold, there is a corresponding amount of Ether held in reserve. This means the number of ETF shares available is based on the amount of Ethereum held in reserve. Spot ETF allows investors to gain exposure to Ethereum without going through the complexities like private keys, digital wallets, etc. Spot Ethereum ETFs are traded like any other asset on the stock market, and unlike cryptocurrency, investors don’t need to worry about directly holding the asset.
What Analysts Say About The Potential of Spot Ethereum ETF Approval?
On January 30, 2024, Geoffrey Kendrick, the head of Standard Chartered Bank’s forex and digital assets research, anticipated the SEC’s approval of a spot Ethereum ETF. He speculated that the SEC would likely adopt a strategy akin to the one used for approving spot Bitcoin ETFs, initially rejecting before ultimately granting approval.
We expect pending applications for ETH U.S. spot ETFs to be approved on May 23, the final deadline for the first of the ETFs under consideration — the equivalent date to Jan. 10 for BTC ETFs.
On March 20, 2024, Bloomberg analyst James Seyffart expressed skepticism about the approval of the Spot Ethereum ETF in May. He believed that the likelihood of spot Ether ETFs being approved had decreased due to the limited enthusiasm and engagement from potential issuers. Seyffart pointed out that, similar to the approval process for spot Bitcoin ETFs, the SEC had engaged in extensive back-and-forth discussions with issuers. Previously, Seyffart and his colleague had estimated a 35% chance that one or more issuers would receive approval.
My cautiously optimistic attitude for ETH ETFs has changed from recent months. We now believe these will ultimately be denied May 23rd for this round. The SEC hasn’t engaged with issuers on Ethereum specifics. Exact opposite of BitcoinETFs this fall.
In January 2024, Nikolaos Panigirtzoglou, managing director and global market strategist at JP Morgan, stated his opinion that for the SEC to approve spot Ethereum ETFs in May, it would need to reclassify Ethereum as a commodity rather than a security. Additionally, he indicated that, up to that point, he wouldn’t assign the SEC more than a 50% chance of reclassifying Ether as a commodity before May.
In April 2024, JP Morgan predicted that the SEC would eventually approve spot Ether. He mentioned that if the spot Ether ETF is not approved in May, a litigation process could be expected afterward. He further expressed their belief that the SEC would likely lose the litigation and eventually approve spot Ethereum ETFs.
On April 23, 2024, Standard Chartered Bank reversed its previous stance by saying that it no longer anticipates the approval of spot Ethereum ETFs in May. Geoffrey Kendrick explained that they had previously anticipated the SEC to approve spot Ethereum ETFs on May 23, 2024, based on the assumption that the ETH approval process would mirror that of Bitcoin ETF approval. However, as there have been no indications of such a progression thus far, it suggests that the approval of spot Ether ETF is improbable in May.
Why Did the SEC Delay Its Decision for Spot Ethereum ETF Approval?
The SEC has postponed its decision on whether to approve or disapprove Grayscale and Franklin Templeton‘s proposed spot Ether ETFs to June 23 and June 11 of this year. This delay occurred precisely one month before Franklin Templeton’s final deadline, set for May 23, 2024. Additionally, the SEC has extended the decision deadlines for other firms, such as BlackRock, Hashdex, Ark 21Shares, Fidelity, and Cboe BZX Exchange, which have applied for spot Ether ETFs. The SEC cited the need for additional time to review the applications.
The Commission finds that it is appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider the proposed rule change, as modified by Amendment No. 1, and the issues raised therein.
Will The SEC Approve Spot Ethereum ETFs?
Analysts had initially expected a smooth approval process for Ether ETFs after the clearance of 11 spot Bitcoin ETFs. However, Bloomberg’s Eric Balchunas has lowered the probability of a spot Ethereum ETF by May from 70% to 35%. Concerns arose as discussions between issuers and the SEC remained one-sided, with lawmakers advocating for a pause in crypto ETF approvals. Despite some optimism triggered by a public comment period initiated by the SEC, analysts like James Seyffart caution against excessive optimism, citing the standard regulatory procedure.
Additionally, the SEC’s restrained communication contrasts with the more transparent approach seen before Bitcoin ETF approvals. While media attention has waned, some argue that the timing of approval matters less than its eventual inevitability, given the crypto industry’s evolution. Standard Chartered analysts predict that Ether may not face the same sell-off risks as Bitcoin, offering a degree of stability amid regulatory uncertainties.
Benefits of Spot Ethereum ETF
If spot Ethereum ETF gets approved, it would bring numerous benefits to investors, and they are:
- Accessibility: Spot Ethereum ETFs reduce the entry barrier for traditional investors, enabling those unfamiliar with cryptocurrency to easily invest in Ethereum.
- Liquidity: Spot ETFs are traded continuously on the stock market, facilitating investors’ buying and selling of ETF shares based on their investment strategies and prevailing market conditions. This enhanced liquidity is expected to bolster the Ethereum market.
- Diversification: Investors have the opportunity to diversify their portfolios by allocating a portion of their assets to spot Ethereum ETFs. As Ethereum experiences growth, the spot ETF, reflecting its price, is also expected to increase in value, offering potential benefits to investors.
- Regulated: Spot ETFs are overseen by the appropriate regulatory bodies, providing investors with assurance against the lack of protection and risks typically associated with non-regulated investments.
- Adoption: Spot Ethereum ETFs are poised to attract traditional and institutional investors to the Ethereum market. This influx of new investors is expected to drive up demand and potentially result in higher prices for Ethereum.
Conclusion
In conclusion, the approval of spot Ethereum ETFs remains uncertain amidst shifting analyst predictions and regulatory delays. Despite the challenges, the potential benefits of spot Ethereum ETFs, including accessibility, liquidity, and adoption, suggest a promising future for Ethereum investment. As the market evolves and matures, the ultimate approval of spot Ethereum ETFs might signify a critical milestone in Ethereum’s march to mainstream adoption.
