The journey towards the approval of a spot Ethereum (ETH) Exchange-Traded Fund (ETF) in the United States has taken a complex turn, with developments in recent weeks casting a shadow over its immediate prospects. The anticipation surrounding the potential approval has been met with several setbacks, including a lack in communication between the Securities and Exchange Commission (SEC) and ETF applicants, as well as an ongoing investigation by the SEC into the Ethereum Foundation regarding the classification of Ethereum as a security.
Following this, Bloomberg ETF analyst Eric Balchunas recently adjusted the odds of the ETF’s approval by May 23, the final deadline for one of the applications, to a mere 25%. This adjustment comes amidst growing skepticism over the immediate future of Ethereum ETFs in the US market.
Why A Spot Ethereum ETF Is Net Positive
Contrary to the disappointment typically associated with regulatory delays, Nic Puckrin, the CEO of Coin Bureau, presents an optimistic outlook on the postponement of the Ethereum ETF approval. In a post on X, Puckrin stated, “In case it wasn’t obvious, the chances of an ETH ETF by May are pretty low. The Polymarket prediction market has the probability at 19%,” Puckrin stated, adding, “But, perhaps this is a good thing?”
Puckrin’s commentary delves into the mismatch between market expectations and reality, particularly in the context of the underwhelming reception of Ethereum futures ETFs launched in October last year. This event, he suggests, serves as a precedent, indicating a potential lack of heightened interest in spot products by default.
He argues that a rush towards alternative crypto products following the Bitcoin ETF launch might not be met with the enthusiasm some anticipate. “The timing just isn’t right,” Puckrin elucidated, highlighting the absence of immediate demand from broader TradFi participants for alternative products like Ethereum ETFs.
Furthermore, Puckrin questions the intrinsic appeal of Ethereum ETFs in the absence of yield-generating mechanisms like staking. This aspect of Ethereum’s utility, while attractive to investors, introduces a layer of complexity in the SEC’s evaluation process. “Unless the ETH ETFs will offer yield to the holders, it makes less sense for funds to hold the ETFs vs. investing in ETH spot and staking,” he observed.
The regulatory scrutiny over Ethereum’s staking feature is another pivotal aspect of Puckrin’s argument. He points out that the SEC’s current interest in classifying ETH as a “security,” primarily due to its staking capabilities, poses a substantial risk to the approval process.
“Let’s not forget that the whole staking component is why Gary & Co is trying to now label ETH as a ‘security’,” Puckrin remarked, highlighting the potential repercussions of such a classification on the broader Ethereum ecosystem and related financial products.
Bitwise Agrees
Echoing Puckrin’s sentiments, Matt Hougan of Bitwise expressed a preference for a delay in all ETF approvals until December. In an interview with Forbes, Hougan articulated his belief that the market for Ethereum ETFs would be more robust and attractive if given additional time for the TradFi sector to acclimate to Bitcoin and the broader crypto ecosystem.
“I think Ethereum will be very attractive. I think the ether ETFs will be more successful if they launch in 12 months than if they launch in May. I know that sounds goofy, but I think TradFi is still digesting Bitcoin and if you give TradFi time to get comfortable with bitcoin and crypto, they will be ready for the next thing,” Hougan remarked.
A potential delay, as Puckrin notes, could coincide with a burgeoning altcoin season and potentially a change in regulatory leadership at the SEC, setting the stage for a more conducive environment for the introduction and acceptance of Ethereum ETFs.
“By that time, we could be the full throes of a new Altcoin season with intense demand for alternative ETF products. We could also be in the process of a change of hands at the SEC if you believe the latest polls,” Puckrin concluded, offering a silver lining to the cloud of delay hanging over the Ethereum ETF prospects.
At press time, ETH traded at $3,344.
Featured image from iStock, chart from TradingView.com
