Ethereum ETFs in the US – doubts about imminent approval by the SEC

Bitcoin ETFs have been demonstrating since January how the approval of such financial instruments in the USA strengthens the value of the linked asset class. Now hopes are being pinned on Ethereum ETFs – but is this realistic?

Ethereum ETFs and their potential approval by the US Securities and Exchange Commission (SEC) are currently a hot topic in the crypto scene. Since January, Bitcoin ETFs in the US have been demonstrating the effects that the new approval of such financial instruments can have – Bitcoin has switched to rally mode and is setting new all-time highs. Many investors would also like to see this kind of momentum for Ethereum (ETH) and are therefore waiting for May 23. The SEC could then give the “green light” for several Ethereum ETFs at the same time. But there are also justified doubts that the SEC will abandon its blockade stance on Ethereum ETFs.

Renowned crypto journalist Laura Shin recently had ETF specialist Eric Balchunas from Bloomberg as a guest on her podcast Unchained. Balchunas and his colleague James Seyffart had accurately predicted the approval of Bitcoin ETFs. As far as Ethereum ETFs were concerned, their predictions in January were still at over 60 percent probability of rapid approval. Now, however, Balchunas corrects the probability to 50 percent in an interview with Shin, also referring to discussions with his colleague Seyffart.

Ethereum ETFs – these are obstacles from an expert’s perspective

There are three main obstacles that Balchunas and other experts currently identify for Ethereum ETFs:

1. the SEC approval process is stalling. The authority did have a meeting with representatives of the crypto exchange Coinbase last week to discuss possible Ethereum ETFs. However, the SEC has not yet scheduled any official meetings with the actual applicants, including Grayscale and BlackRock. Two months before the approval of Bitcoin ETFs, the process there was already further advanced.

2. the trigger for the later approval of Bitcoin ETFs was a court victory by Grayscale in August 2023, in which existing Bitcoin futures ETFs and price correlations between the spot and futures market played an important role. According to Balchunas, these price correlations could diverge further with Ethereum than with Bitcoin and thus provide the SEC with an argument for non-approval.

3 Moreover, Balchunas does not consider it certain that Grayscale or other applicants for Ethereum ETFs would take the SEC to court. This would be a costly affair and Grayscale has seen how the use for Bitcoin ETFs ultimately benefits competitors. In addition, Balchunas expresses doubts as to whether Ethereum ETFs could attract enough capital to justify approval.

Conclusion: SEC approval of Ethereum ETFs is not a sure-fire success

Podcast host Laura Shin herself reminds us that the SEC, led by Gary Gensler, continues to be extremely crypto-critical. Gensler continues to issue warnings about fraud against Bitcoin and the like, calling BTC “primarily a speculative, volatile investment” and also referring to the illegal use of cryptocurrencies in critical areas such as terrorist financing or extortion with ransomware.

It is therefore possible that the SEC’s change of position on Bitcoin ETFs will remain an isolated case for the time being and Ethereum ETFs will remain a pipe dream. One current recommendation is to keep a close eye on whether the SEC will enter into detailed discussions with Ethereum ETF applicants in the coming weeks, as it did with Bitcoin ETFs. The price correlation between Ethereum on the spot markets and ETH futures could also provide an important indication of whether the SEC can come up with a strong justification for not approving Ethereum ETFs. To put it bluntly: The date of 23 May for the hoped-for approval of Ethereum ETFs by the SEC is shaky, even optimists still recognize relevant obstacles.

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