- Bloomberg experts have reduced the chances of spot ETH-ETF approval in May to 35%.
- The decline in optimism is due to the SEC’s low engagement in discussions with issuers.
- The PoS mechanism, price manipulation risks, and the potential classification of the asset as a security pose additional challenges for a positive verdict.
Bloomberg analyst Eric Balchunas has halved the likelihood of the SEC approving a spot Ethereum-ETF in May—from 70% to 35%.
Yeah our odds of eth ETF approval by May deadline are down to 35%. I get all the reasons they SHOULD approve it (and we personally believe they should) but all the signs/sources that were making us bullish 2.5mo out for btc spot are not there this time. Note: 35% isn’t 0%, still… https://t.co/QWQOGZjDC5
— Eric Balchunas (@EricBalchunas) March 11, 2024
“I understand all the reasons why they [the Commission staff] should approve it […]. But all the signs/sources that made us optimistic about the spot Bitcoin-ETF are not there this time,” the expert wrote.
The expert emphasized that 35% is not 0%. In the long term, the product will be approved.
Balchunas was supported by his colleague James Seyffart.
This #Ethereum ETF cycle feels like the opposite of #Bitcoin ETF approval odds at the moment. The more we see/hear (and don’t see/hear) the less optimistic I become.
We’re ~73 days from the deadline and there really seems to be little to no movement https://t.co/N6OpM870XF
— James Seyffart (@JSeyff) March 11, 2024
“This cycle […] seems opposite to the chances of spot Bitcoin-ETF approval. The more we see/hear (and don’t see/hear), the less optimistic I become. There are ~73 days left until the deadline. There seems to be little to no movement,” he explained.
In January, Balchunas assessed similar odds at 70%, Seyffart at 60%.
All Eyes on April
Representatives of market maker GSR told The Block that they still expect the product to be approved but warned of a reduced probability if no progress is made in the coming month.
“The only caveat is this. In October 2023, we started to see movement on spot Bitcoin-ETF applications for approval by January 10. This is not yet the case for Ethereum-based ETFs. Perhaps the SEC and issuers are leveraging past experience to streamline the process. But if we don’t start seeing progress in the next month, we will lower our approval odds,” they indicated.
In January, experts assessed similar odds at 70%.
Journalist Eleanor Terrett also began to doubt the accuracy of her prediction for ETF approval in May due to minimal SEC staff involvement. However, she did not entirely rule out a “180-degree turn.”
This squares with what I’m hearing too but, to Jake’s point, that does not mean it won’t get approved this year, just that time is clearly ticking down to the May deadline with no meaningful engagement yet from SEC staff on applications.
But who knows they could go parabolic on… https://t.co/5EtKGL1YkI
— Eleanor Terrett (@EleanorTerrett) March 11, 2024
“Who knows, maybe their engagement [with product issuers] in April-May will become parabolic,” she suggested.
Six Obstacles
Terrett responded to a post by industry lawyer Jake Chervinsky, who listed six obstacles from the agency for a positive verdict.
It brings me no joy to be an ETH ETF bear. I’ve been working for Ethereum in one sense or another for 5+ years. I want the ETF to be approved. It should be.
But I’m calling it like I see it, and I see an SEC that:
(1) dislikes crypto as a concept, sees no value in the…
— Jake Chervinsky (@jchervinsky) March 11, 2024
- Dislikes cryptocurrencies as a concept, sees no value in the technology, and considers attacking it politically advantageous.
- Aims to appease officials and external observers who have made combating digital assets a core part of their platform and have publicly criticized the SEC for approving spot Bitcoin-ETFs even *after* the Grayscale opinion.
- Has a flawed but not insane basis for denying the correlation between spot/futures, which may be excluded by the Grayscale opinion, but not necessarily.
- New grounds for denial may emerge that were not tested by Grayscale in court; this will likely also be challenged in court, but the SEC may find it easier to justify.
- Is willing to take legal risks and lose in court, preferring to be seen as a “fighter” in the war against cryptocurrencies.
- Currently appears to be making little effort to work out the details necessary for approval and listing; instead, focusing on thorough compliance checks, possibly to build a case for denial.
Chervinsky emphasized that he remains hopeful for the product’s approval this year but is forced to reassess these odds downward.
“The good news is that in the coming weeks, we will get more signals about the SEC’s direction. […] If we don’t see signs [of work] and hear these reports as we approach the May 23 deadline, this silence will speak volumes,” he explained.
Additional Reasons
Analysts at BloFin noted that exchange-traded funds based on the second-largest cryptocurrency by market capitalization have a lower likelihood of approval than their Bitcoin-based counterparts.
The reason lies in the negative impact of the PoS mechanism, manipulation risks, and the potential classification as a security. Experts expressed confidence that the SEC’s verdict will not prevent the asset’s price from continuing its upward trend.
On March 8, Grayscale and Coinbase discussed with the regulator the conversion of ETHE into a spot ETH-ETF. The agency’s representatives showed little enthusiasm in the discussion. Bloomberg and FOX Business saw this as a reduction in the likelihood of product approval in May.
Besides Grayscale, the Ethereum-ETF race also includes Franklin Templeton, VanEck, BlackRock, Fidelity, and Invesco with Galaxy.
Some experts believe the regulator will register the instruments in May. However, a group of analysts for various reasons doubt this.