Will Ethereum ETFs Ever Get Approved?

Introduction

The year 2024 has been a pivotal period for cryptocurrencies, marked by a series of remarkable events that have reshaped the financial landscape. From Bitcoin's price reaching an all-time high to the much-anticipated Bitcoin halving event, the world of digital currencies has literally shaken things up. However, the most significant development of the year has been the groundbreaking advancements in the crypto-linked Exchange Traded Funds (ETFs) space.

Predominantly classified as traditional finance, the sector has seen both triumphs and setbacks, particularly in the case of Bitcoin and Ethereum ETFs. And, as we dive deep into this space, we find ourselves at a crossroads, where the future seems bright for Bitcoin ETFs but increasingly uncertain for Ethereum.

Bitcoin ETFs: A Success Story in the Making

Bitcoin ETFs have seen a remarkable surge in popularity since their approval by the U.S. Securities and Exchange Commission (SEC). This decision opened the door for cryptocurrencies to reach a broader investor base, including those who were previously reluctant to engage directly with the crypto market. The SEC's approval of 11 Bitcoin ETFs in January 2024 was met with enthusiasm by the crypto community and large fund managers alike. BlackRock, Fidelity Investments, and Invesco were among the first major players to launch such funds and have since then witnessed a significant uptick in interest and participation. The approval of Bitcoin ETFs was seen as a substantial win for crypto advocates, pushing cryptocurrencies further into the financial mainstream.

Ethereum ETFs: A Dream Deferred?

In contrast to the relatively clear path Bitcoin ETFs have taken, Ethereum ETFs face a more challenging road ahead. The SEC's stance on Ether, the native cryptocurrency of the Ethereum network, seems to be a major roadblock. There are growing concerns that the SEC may not approve Ethereum ETFs anytime soon, especially after a period of "radio silence" from the commission regarding the roster of pending Ether ETFs.

According to a recent research report by JPMorgan, the recent revelation of the U.S. SEC investigating firms linked to the Ethereum Foundation supports the perception that the approval of a spot ether (ETH) ETF in May has less than a 50% probability.

Earlier, Van Eck CEO Jan van Eck expressed pessimism about the approval of Ethereum ETFs in May, a sentiment echoed by CoinShares CEO Jean-Marie Mognetti and Bloomberg ETF analyst Eric Balchunas. They believe that the SEC's lack of comment regarding the pending Ether ETFs signals a negative outlook for their approval.

Reasons Behind the Delay & Potential Denial

The delay in approving Ethereum ETFs by the U.S. watchdog can be attributed to several factors. Firstly, there's a general skepticism and cautious approach by the SEC regarding Ethereum and other cryptocurrencies. This skepticism stems from concerns about market manipulation and fraud, as well as the need for further regulatory clarity on whether Ethereum should be classified as a security or a commodity.

Moreover, the multifaceted use cases of Ethereum, such as decentralized finance (DeFi) and NFTs, may introduce additional complexities into the SEC's review process. It has only been a few days since the SEC took a bold step against Uniswap—the leading decentralized exchange—by serving them a Wells Notice. This action is a clear indication that the SEC intends to file a lawsuit against the platform in the near future.

Is there a Case for Approval?

A total rejection of the Ethereum ETF could potentially lead to legal action from the applicants, who seem to maintain a strong case based on firm evidence. In the case of Bitcoin, the approval of the spot Bitcoin ETF was influenced by the high correlation between the spot Bitcoin and CME Bitcoin futures markets. According to analyses by Fidelity, Bitwise, and Coinbase, similar correlations exist for Ethereum, making it unlikely for the SEC to raise the same concerns again.

Additionally, there's no denying that the green light for Bitcoin ETFs marked a watershed moment for the crypto market and the broader financial industry. To an extent, this historical event set a precedent for the potential introduction of other crypto-focused ETFs. Some industry stalwarts are optimistic about the eventual launch of spot Ethereum ETFs in the U.S. market, with the belief that the reasons for approval will ultimately outweigh any arguments against it.

Final Thoughts

The current state of Ethereum ETF presents a mixed picture. While some anticipate the SEC to come with all guns firing, others believe the outcome might be more favorable. In general, the overall market sentiment appears optimistic about the eventual approval of Ethereum ETFs by the SEC. But as crypto investors know from experience, last-minute surprises can never be ruled out!

As we move forward, the potential approval of ETFs for Ethereum will likely hinge on the evolving regulatory landscape and the SEC's willingness to embrace cryptocurrencies as a legitimate investment vehicle. For now, the Ethereum ETF story remains one of hope and uncertainty, with Bitcoin leading the charge while Ethereum waits in the wings.