SEC Delays Decision on BlackRock’s Spot Ethereum ETF

SEC has postponed its decision on BlackRock’s spot Ethereum ETF until March 10. The agency’s head, Gary Gensler, urged against creating hype around the instrument, citing the “limited” registration of a similar Bitcoin-based product, according to The Block.

The official explained that the January decision was limited to one cryptocurrency and “should not be seen as anything else.”

“What we did regarding the Bitcoin ETF pertains to this single commodity, which is not a security,” he explained.

The Commission justified the delay on BlackRock’s proposal by citing the need for “sufficient time to consider the proposed rule change and the issues raised therein.”

Target Date — May 23

Bloomberg analyst James Seyffart predicted a similar scenario by May 23. The final deadline “matters,” he added.

Spot Ethereum ETF Delays will continue to happen sporadically over the next few months. Next date that matters is May 23rd https://t.co/2zBBvHkrVk

— James Seyffart (@JSeyff) January 24, 2024

Experts surveyed by The Block were divided on the prospects of SEC approval for a spot Ethereum ETF.

The publication recalled the lack of consensus on the registration of a similar digital gold-based product in January (three votes against two) and the regulator’s head stating that the decision “does not signal the Commission’s readiness to approve listing standards for securities with crypto assets.”

Currently, representatives of TradFi consider the approval of a spot Ethereum ETF unlikely, while the community expresses cautious optimism. The latter points to similarities with the process of considering a Bitcoin-based instrument, according to The Block.

The Optimists’ Camp

“We expect a positive verdict in May with a probability of ~75%. The optimistic forecast is based on Grayscale’s victory in the appellate court and the approval of an Ethereum futures-based ETF. Together, this suggests that registration is a matter of time,” explained GSR research analyst Matt Kunke.

The specialist is confident in the “inevitable” appeal against a refusal to register the instrument in May if the SEC acts accordingly. In this case, the agency “will choose the path of least resistance, approving instruments while maintaining a skeptical stance towards other cryptocurrencies.”

Philip Bechazi, founder and CEO of XBTO, holds a similar view.

“We will see approval this year. Regulated futures on Bitcoin and Ethereum have been launched on CME. […] If market conditions remain strong, there will be further pressure to make the asset available to institutions. Registration is definitely a question of ‘when,’ not ‘if,'” the expert stated.

Earlier, Bloomberg analyst Eric Balchunas estimated the chances of product approval by May at 70%. The specialist also noted that it is difficult for him to imagine a scenario where spot Bitcoin ETFs were eventually launched, but spot Ethereum ETFs were not.

Balchunas’ colleague, James Seyffart, expressed slightly less optimism.

“We believe the odds exceed 50%, but we are far less confident than with the Bitcoin ETF. I would say the probability is 60-65%,” he assessed.

CIO of Bitwise, Matt Hougan, noted certain challenges with approval and agreed that the SEC will eventually take this step.

“Ethereum ETF has a clear prospect. In our view, all the components are in place, including the existence of a large and reliable regulated futures market and the existence of futures ETFs. However, Ethereum is more complex than Bitcoin, so the timing is uncertain. I would say there are good chances in 2024, but it’s not a refusal,” he explained.

CEO of CF Benchmarks, Sui Chung, suggested trading spot exchange-traded funds based on Ethereum by the end of the year.

“With the launch of Bitcoin ETFs, issuers now know the bar they must meet. The second-largest cryptocurrency by market cap has already reached most key milestones: liquid regulated CFTC futures are traded on CME, with ETFs that invest in these futures,” he reported.

The Pessimists’ Camp

Pessimists regarding Ethereum ETFs cite the SEC’s conservatism concerning exchange-traded products based on cryptocurrencies in general.

“We are less optimistic about the potential approval of an Ethereum ETF in 2024. The SEC has made it clear that it views the vast majority of crypto assets as investment contracts subject to securities laws. This excludes them from the structure of exchange-traded products for individual commodities not related to securities,” stated Anthony Scaramucci, founder and managing partner of SkyBridge Capital.

CEO of Morgan Creek Capital, Mark Yusko, estimated such chances at less than 50%. The specialist noted the SEC’s hostility towards the industry as a whole.

JPMorgan analyst Nikolaos Panigirtzoglou shares a similar position.

Analysts from investment bank TD Cowen also doubted the imminent registration of spot Ethereum ETFs. 

Earlier, FOX Business predicted the adoption of the instrument by summer 2024.

Previously, BlackRock CEO Larry Fink stated that he “sees value” in spot Ethereum ETFs, calling it a step towards tokenization.