Compared to the Bitcoin spot ETF, market participants are apparently more pessimistic about the possibility of an Ethereum spot ETF being approved. This article is sourced from an article titled “Is the Ethereum ETF Happening?” by Bankless, compiled, translated, and written by Blockbeats.
Summary:
SEC delays decision on Fidelity’s “Ethereum spot ETF,” Bloomberg analyst reveals key timing.
Background:
The probability of approving an Ethereum spot ETF this year is less than 50%! Morgan Creek: SEC still considers ETH as a security.
Table of Contents:
Why would an Ethereum spot ETF be rejected?
Will an Ethereum spot ETF be approved?
Is an Ethereum spot ETF bullish?
With the approval and listing of the Bitcoin spot ETF, the approval of an Ethereum ETF has become a topic of discussion. Although the market is pleased with the approval of the Bitcoin spot ETF, factors such as GBTC redemptions and crypto traders closing positions have had a suppressing effect on the price.
Regarding the prospects of the upcoming Ethereum spot ETF, Bankless analyst Jack Inabinet points out that there are doubts in the market about the approval of an Ethereum spot ETF. Some experts believe that the SEC may need to clarify its non-security status before approving the spot ETF, but Gensler’s regulatory stance on Ethereum is still unclear.
In addition, Jack Inabinet provides a detailed analysis of the differences between futures ETFs and spot ETFs, as well as the reasons why market participants are relatively less optimistic about the approval of an Ethereum spot ETF. He also presents some potential challenges that the market may face. The original article is translated by BlockBeats as follows:
After a decade of delay and rejection, last week, the U.S. Securities and Exchange Commission (SEC) urgently approved the listing of a Bitcoin ETF on U.S. stock exchanges, bringing joy to the entire crypto industry.
The Bitcoin spot ETF product began trading last Thursday. Although Bitcoin did not create the “God candle” that some people in the crypto industry expected, which means replicating the effect brought by our investment in traditional finance, the inflow of funds into the ETF met analysts’ expectations, attracting nearly $2.9 billion in newly established funds.
Despite the factors of $1.2 billion redemption of GBTC and crypto traders closing long positions suppressing the price, the long-term impact of the ETF approval cannot be underestimated.
Now, pure exposure to crypto assets can be obtained through each (or at least most) traditional brokerage accounts in the United States, which has never happened before in history, opening the door for a new capital group to buy crypto assets. What’s even better is that traditional financial giants, as issuers of these new Bitcoin ETFs, now have financial incentives to promote our assets, or at least Bitcoin, in an attempt to generate more fee income by expanding the asset under management of their products.
With the launch of the Bitcoin spot ETF, traders are now closely watching Ethereum and trying to get ahead before its upcoming spot ETF, with the final approval deadline for the ETF being May 23.
In the crypto field, there is always a bull market, and the narrative has once again shifted to Ethereum, leading to a surge in healthy buying interest this week, pushing ETH/BTC up 25% and breaking free from a year and a half of downtrend that has plagued holders since the merge!
Although traders have begun to prepare for the arrival of the Ethereum spot ETF, not everyone is certain that they will definitely come.
Bloomberg senior ETF analyst Eric Balchunas gives the probability of approval at only 70%, lower than the 90% probability he gave to the Bitcoin spot ETF.
Even more pessimistic is Nikolaos Panigirtzoglou, director of global market strategy and digital assets at JPMorgan, who believes that the SEC needs to classify Ethereum as a non-security before approving the spot ETF, and he does not believe that the institution has more than a 50% probability of doing so before May.
SEC Chairman Gary Gensler, who was the decisive voter in approving the Bitcoin spot ETF, has always insisted that Bitcoin is not a security under federal securities law, but for Ethereum, he refuses to provide any regulatory clarity.
There are concerns that Ethereum’s design of proof of stake and its ability to generate income may automatically classify it as a security.
There seem to be many skeptics online about the approval of an Ethereum ETF. Fortunately, they are likely to be wrong.
In the crypto field, many people are concerned that the SEC will reject the Ethereum spot ETF by classifying Ethereum as a security because the institution has stated that the vast majority of crypto assets are investment contracts governed by federal securities law. However, Ethereum’s status as a non-security seems to have been solidified.
The SEC has filed lawsuits against multiple crypto exchanges for listing crypto assets that are considered securities, including tokens from other L1s such as SOL, NEAR, and ATOM. None of these enforcement actions listed Ethereum as a potential security.
Panigirtzoglou of JPMorgan believes that the SEC needs to make a decision on Ethereum’s security status, but the institution approved an Ethereum ETF holding commodity futures contracts last October, providing clear information that Ethereum is considered a non-security.
Although the SEC insists that their approval of the Bitcoin spot ETF does not indicate the committee’s willingness to approve ETFs of other crypto assets, this approval has cleared the way for an Ethereum spot ETF!
The core of Chairman Gensler’s approval of the Bitcoin spot ETF was a decision by the U.S. Court of Appeals that the Bitcoin spot ETF proposed by Grayscale should be treated similarly to the two approved Bitcoin futures ETFs because they are sufficiently similar. With the approval of futures ETFs for Ethereum, just as they did for Bitcoin, the court’s decision creates a precedent that is likely to prevent the SEC from denying an Ethereum ETF due to concerns about fraud or manipulation practices, which was their reason for denying previous Bitcoin ETF applications.
In addition, the legal precedent established by the SEC’s lawsuit against Ripple found that digital tokens themselves do not meet the Howey Test and are only securities when sold as investment contracts. This makes concerns about Ethereum’s ability to generate income from staking unrelated to the approval of an Ethereum spot ETF, as this type of transaction is not subject to securities laws related to Ethereum’s staking.
The approval of an Ethereum spot ETF could have a bullish long-term impact, but it also has a high probability of being a sell-the-news event. Even Bitcoin, whose ETF debut largely met analysts’ expectations, has already fallen 12% from its listing high.
Demand for Ethereum futures ETFs was disappointing when launched last year, with the entire group generating only $1.7 million in trading volume in the first few hours of listing, while Bitcoin futures and spot products generated hundreds of millions of dollars in trading volume in the first few hours of trading, showing a stark contrast.
Although futures products are not as popular as spot products because they expose investors to contango and backwardation effects (i.e., future contracts’ prices may be higher or lower than the price of the expiring contract), the lack of demand for exposure to Ethereum from traditional financial market participants may indicate that future demand for spot products will also be insufficient.
Issuers will need to attract organic demand for their Ethereum spot ETF products to succeed, and it is currently unclear where they intend to find it. Perhaps traditional finance intends to create this demand by promoting Ethereum to the general public on CNBC.
While it is unclear how much demand the Ethereum spot product will receive, market participants are apparently more pessimistic about the approval of an Ethereum spot ETF than they are about the approval of a Bitcoin spot ETF.
An unexpected approval could make investors realize their position was incorrect and lead to them mimicking Ethereum, meaning that the debut of an Ethereum spot ETF, unlike the situation with Bitcoin, could have the potential for a bullish unlocking.
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