On January 10, the United States Securities and Exchange Commission (SEC) gave the green light to 10 spot Bitcoin exchange-traded funds (ETFs), allowing American investors to enter the market of Bitcoin-backed securities. The very next day, on January 11, spot Bitcoin ETFs were launched on public exchanges and have since attracted billions of dollars in investments.
The approval of spot Bitcoin ETFs marked a significant milestone in the history of Bitcoin, as it came after years of rejections. Now, with spot Bitcoin (BTC) ETFs officially approved, all eyes are on the spot Ether (ETH) ETF applications, which are due for a decision in May.
Similar to the process for spot BTC ETFs in 2023, major financial institutions such as BlackRock, ARK Invest, Fidelity, Invesco Galaxy, and others have filed for spot Ether ETFs. The first application for a spot Ether ETF was submitted by ARK in September 2023, followed by others such as BlackRock.
The SEC has postponed its decision on spot Ether ETFs multiple times, much like the delays faced in approving spot BTC ETFs. However, with different deadlines for the seven Ether ETF applicants, the SEC may choose to make a decision on all applications simultaneously, as it did with spot BTC ETFs.
As the final deadline approaches, experts in the ETF industry and the crypto community are divided on whether a spot ETH ETF will be approved in 2024.
On one hand, Bloomberg ETF analyst James Seyffart believes that the SEC has already accepted Ether as a commodity when it gave the green light to Ethereum futures ETFs. Therefore, it is only a matter of time before a spot Ether ETF is approved. Senior Bloomberg analyst Eric Balchunas also shares this sentiment, giving a 70% chance of approval for a spot Ether ETF by May.
On the other hand, Mark Yusko, CEO of Morgan Creek Capital, is less optimistic, giving less than a 50% chance of approval for a spot Ether ETF in the US in 2024. Yusko argues that the SEC has a general hostility towards cryptocurrencies, as evidenced by the agency’s Chair, Gary Gensler, who expressed skepticism on the day spot BTC ETFs were approved. Yusko also notes that the SEC may still view Ether as a security, unlike Bitcoin, which is considered a commodity.
Gensler has previously stated that all cryptocurrencies, except for Bitcoin, are securities. However, according to Bloomberg analyst James Seyffart, “the SEC has essentially accepted Ethereum as a commodity.”
Recent developments have also shed light on the potential success of an Ether ETF, with its positive environmental, social, and governance (ESG) properties. Rika Khurdayan, U.S. chief legal officer at European crypto exchange Bitstamp, believes that the SEC will ultimately approve a spot Ether ETF, although the process may take longer than it did for spot BTC ETFs. She suggests that the SEC may want to observe the market for spot BTC ETFs before approving another cryptocurrency ETF, given the unique characteristics of Ethereum compared to Bitcoin.
The Potential for a Spot Ether ETF and the Questions Surrounding It
Ether has consistently held the second spot in the crypto market for years, with Ether futures already being traded in US markets.
However, the Ethereum blockchain and its features differ greatly from Bitcoin, which could present challenges for regulators to navigate.
Unlike BTC, Ether does not have a fixed market supply and also supports staking, where holders can lock up their Ether for a set period and receive rewards based on their stake.
Cathy Yoon, general counsel at the Wormhole Foundation, believes that the SEC will eventually approve an ETH ETF, but the issue of staking is still unresolved:
The launch of spot BTC ETFs has shown that traditional finance markets have a strong interest in crypto-based securities, with these products quickly gaining billions in daily volume. In fact, on January 16th, the 11 spot Bitcoin ETFs did three times the daily volume of all 500 ETFs launched in 2023 combined. Whether this trend will continue for Ether remains to be seen.
Despite current challenges with the SEC, the belief that a spot Ether ETF will be approved in 2024 is based on several factors. These include the parallel listing and regulation of Bitcoin and Ethereum futures, which have seen significant participation from large traders in the past year, positioning them as comparable assets in the eyes of the SEC. Additionally, the anticipation of continued market strength and growing demand from institutional investors adds further pressure for regulatory approval.
BlackRock’s Success in ETF Approval Compared to Garry Gensler
BlackRock played a significant role in the recent approval of a spot Bitcoin ETF by the SEC, a feat that had previously been rejected multiple times. This boosted confidence in the crypto community, especially with BlackRock’s impressive track record of 575 approvals and only one rejection.
As the decision deadline for spot Ether ETFs approaches in May, many are curious to see if BlackRock will continue its streak.
Jag Kooner, head of derivatives at Bitfinex, believes that BlackRock’s involvement in the Bitcoin ETF market is a positive indication of wider acceptance, but also cautions against potential regulatory pushback:
However, Gensler’s stance on the crypto market may pose a hurdle for Ether’s spot ETF approval. He has consistently stated that all cryptocurrencies, except for Bitcoin, are securities.
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Marc D’Annunzio, general counsel at Bakkt, believes that Gensler’s views on crypto could be a red flag for other crypto-based ETFs:
“Gensler has made it clear that the recent approvals for spot Bitcoin ETFs were limited to ‘one non-security commodity’ – Bitcoin. He has also expressed his belief that most crypto tokens are securities, and the SEC’s uncertainty towards ETH needs to be resolved before a spot ETF can be approved.”
D’Annunzio adds that if and when an Ether spot ETF is approved, it will require regulatory clarity and could benefit from the results of the spot Bitcoin ETFs in the real world.
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