Bankless: When will the Ethereum ETF be approved?
Original title: "Is the Ethereum ETF Happening?"
Original author: Jack Inabinet
Original translation: Lucy, BlockBeats
Editor's Note:
With the approval and listing of Bitcoin spot ETFs, the approval or not of Ethereum ETFs has become the focus of discussion. Although the market is delighted with the approval of Bitcoin spot ETFs, factors such as GBTC redemptions and crypto traders closing their bets on the approval of Bitcoin ETFs have had a suppressive effect on prices.
Regarding the prospects of the upcoming Ethereum spot ETF, Bankless analyst Jack Inabinet pointed out that there are some doubts in the market about the approval of the Ethereum spot ETF. Some experts believe that the SEC may need to clarify its non-security status before approving the spot ETF, but Gensler's regulatory stance on Ethereum is not clear at present.
In addition, Jack Inabinet analyzed in detail the differences between futures ETFs and spot ETFs, and the reasons why market participants are relatively less optimistic about the approval of Ethereum spot ETFs, and put forward some potential challenges that the market may face. BlockBeats will compile the original text as follows:
After a decade of delays and rejections, the U.S. Securities and Exchange Commission (SEC) urgently approved the listing of Bitcoin ETFs on U.S. stock exchanges last week, which made the entire crypto industry rejoice.
The Bitcoin spot ETF product began trading last Thursday. While Bitcoin hasn’t produced the “God candle” some in the crypto industry had hoped for, the effect of traditional finance emulating our investments, ETF inflows have met analysts’ expectations, with the newly formed vehicles attracting nearly $2.9 billion in inflows.
While GBTC’s $1.2 billion in redemptions and crypto traders unwinding their bullish bets on a Bitcoin ETF approval are two factors currently suppressing prices, the long-term impact of an ETF approval cannot be underestimated.
Now, for the first time in history, pure crypto exposure is available through every (or at least most) traditional U.S. brokerage account, opening the door to a whole new group of capital’s ability to buy crypto assets. Even better, the traditional financial giants that are the issuers of these new Bitcoin ETFs now have a monetary incentive to promote our assets, or at least Bitcoin, in an attempt to generate more fee revenue by expanding the AUM held by their products.
With the launch of the Bitcoin spot ETF, traders are now keeping a close eye on Ethereum and trying to get a head start on its upcoming spot ETF, which has a final approval deadline of May 23.
There are always some bull runs in crypto, and the narrative focus has once again turned to Ethereum, resulting in a healthy surge of buying that has sent ETH/BTC up 25% this week, breaking out of a downward trend that has plagued holders for a year and a half since the Merge!
While traders have begun preparing in earnest for the arrival of Ethereum spot ETFs, not everyone is sure they will come.
Why would an Ethereum spot ETF be rejected?
Eric Balchunas, senior ETF analyst at Bloomberg, gives only a 70% chance that it will be approved, lower than the 90% chance he gives to a Bitcoin spot ETF.
More pessimistic is Nikolaos Panigirtzoglou, director of global market strategy and alternative digital assets at JPMorgan, who believes the SEC needs to classify ether as a non-security before approving a spot ETF, and he doesn't think there's more than a 50% chance the agency will do so before May.
SEC Chairman Gary Gensler, the decisive vote to approve a bitcoin spot ETF, has long maintained that bitcoin is not a security under federal securities laws, but has refused to provide any regulatory clarity on ether.
Some worry that Ethereum's proof-of-stake design and ability to generate yield could mean it will automatically be considered a security.
Will an Ethereum Spot ETF Be Approved?
Skeptics of the Ethereum ETF approval seem to be plentiful online. Fortunately, they are also likely to be wrong.
Many in the crypto space worry that the SEC will veto an Ethereum spot ETF by classifying Ethereum as a security, as the agency has already stated that it believes the vast majority of crypto assets are investment contracts subject to federal securities laws. Nonetheless, Ethereum's status as a non-security appears to have been solidified.
The SEC has sued multiple crypto exchanges for listing crypto assets that are deemed securities, including other L1 tokens such as SOL, NEAR, and ATOM. None of these enforcement actions named Ethereum as a potential security.
JPMorgan's Panigirtzoglou believes it is necessary for the SEC to make a decision on Ethereum's security status, but the agency already approved an Ethereum ETF that holds commodity futures contracts last October, providing clarity that Ethereum is not a security.
While the SEC insisted that their action in approving a Bitcoin spot ETF was not indicative of the Commission’s willingness to approve ETFs for other crypto assets, it was this approval that cleared the way for an Ethereum spot ETF!
At the heart of Chairman Gensler’s approval of a Bitcoin spot ETF was the U.S. Court of Appeals’ decision that Grayscale’s proposed Bitcoin spot ETF should be sufficiently similar to the two approved Bitcoin futures ETFs to warrant similar regulatory treatment.
With futures ETFs approved for Ethereum, just as they were approved for Bitcoin, the U.S. Court of Appeals’ decision creates a precedent that will likely prevent the SEC from denying an Ethereum ETF due to concerns about fraudulent or manipulative trading practices, the very reasoning they used to deny prior Bitcoin ETF applications.
In addition, the legal precedent established by the SEC’s case against Ripple, which found that digital tokens do not satisfy the Howey test per se and are securities only when sold as investment contracts, makes concerns about whether Ethereum’s ability to generate income from staking constitute an investment contract irrelevant to approving an Ethereum spot ETF, as this type of transaction has nothing to do with securities laws regarding the staking aspect of Ether.
Are Ethereum Spot ETFs Bullish?
The approval of an Ethereum spot ETF could have bullish long-term implications, but it also has a high probability of being a sell-news event. Even Bitcoin, whose ETF debut largely met analyst expectations, has fallen 12% from its listing high.
Demand for the Ethereum futures ETF was disappointing when it launched last year, with the entire group only able to reach $1.7 million in trading volume in the first few hours of listing, dwarfing the hundreds of millions of dollars in trading volume that Bitcoin futures and spot products have generated within a few hours of trading opening.
While futures products are inferior to spot products because they expose investors to the effects of premium and discount (i.e., the price of the next month's contract may be higher or lower than the price of the expiring contract, respectively), the almost complete lack of demand for Ether exposure from traditional financial market participants may indicate that future demand for spot products will also be insufficient.
Issuers will need to attract organic demand for their Ethereum spot ETF products to succeed, and it is unclear where they intend to find it. Perhaps traditional finance intends to create such demand by peddling Ethereum to ordinary people on CNBC.
While it is unclear how much demand a spot Ethereum product will garner, market participants are clearly more pessimistic about the likelihood of an Ethereum spot ETF being approved than they are about the likelihood of a Bitcoin spot ETF being approved.
The unexpected approval could lead investors to realize that their position was inappropriate and cause them to imitate Ethereum, which means that the spot ETF of Ether debuts, unlike the case of Bitcoin, where the ETF of Bitcoin debuted early due to the massive inflow of funds from traders in the first six months for approval, with potential bullish unlocking possibilities.
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