The sudden change in stance by the US SEC this week has reignited market expectations for the imminent launch of an Ethereum spot ETF. This article will provide readers with information on what Bitcoin and Ethereum spot ETFs are, as well as the differences between futures ETFs and spot cryptocurrencies, and the issuance models.
Table of Contents:
What is an Ethereum Spot ETF?
What are the advantages of ETFs?
When is the earliest possible approval for an Ethereum Spot ETF?
How do institutions and analysts predict the future of ETH?
Lyra Founder: 20% chance of ETH surpassing $5,000 by the end of June.
Bernstein: ETH could reach $6,600.
Standard Chartered Bank: ETH may exceed $8,000 by the end of the year.
Nexo: ETH may reach $10,000 by the end of the year.
How to buy an Ethereum Spot ETF?
What are the differences between spot ETFs and futures ETFs?
Issuance models for spot ETFs.
SEC’s timeline for reviewing Ethereum Spot ETFs.
May 23, 2024:
Bloomberg analyst predicts SEC will approve Ethereum Spot ETF “19b-4 document” at 4 a.m. EST on Friday.
May 21, 2024:
ETH surges 20%, surpassing $3,700. Bloomberg analyst reports that the probability of SEC approval for an Ethereum Spot ETF has increased to 75%.
May 18, 2024:
ETH volatility warning: Several fund companies predict that Ethereum Spot ETF will be rejected next week. What will issuers do next?
May 15, 2024:
Bloomberg analyst: The chance of Ethereum Spot ETF approval next week is very slim. The turning point may come at the end of the year.
April 15, 2024:
Hong Kong approves Bitcoin and Ethereum Spot ETFs. Three fund companies rush to issue, with the earliest listing date being April 25.
Market expectations for the approval of the Ethereum Spot ETF by the US Securities and Exchange Commission (SEC) have risen sharply this week due to several indicators. These include Bloomberg ETF analyst raising the approval probability to 75%, the listing of VanEck and Franklin’s Ethereum Spot ETFs on the Depository Trust & Clearing Corporation (DTCC), and the submission of revised 19b-4 documents by six Ethereum Spot ETF applicants, including VanEck, Fidelity, Franklin, Ark Invest, Grayscale, and Invesco Galaxy.
These positive news have continuously pushed Ethereum’s price up, with it briefly surpassing $38,000. This article will introduce readers to what Ethereum Spot ETFs are, their issuance methods, and the current application status.
What is an Ethereum Spot ETF?
An Ethereum Spot ETF, also known as an Ethereum Spot Exchange Traded Fund, is an investment product that allows ordinary investors to trade on compliant securities exchanges, similar to traditional stocks.
What are the advantages of ETFs?
Compared to buying Ethereum directly on centralized exchanges like Binance or Coinbase or in the DeFi space, the advantage of ETF products is that they allow investors who are accustomed to traditional financial trading methods to participate in cryptocurrency investments without the need to understand the workings of the Web3 world, manage their own cryptocurrency wallets or mnemonic phrases, thus lowering the investment threshold.
At the same time, these ETF issuers are subject to regulatory scrutiny, reducing the likelihood of investors falling victim to scams. Additionally, ETFs can be registered as legitimate assets for companies (cryptocurrencies currently have ambiguous legal status in US accounting law), which is a major reason analysts believe that the approval of ETFs will bring in a large influx of institutional funds.
When is the earliest possible approval for an Ethereum Spot ETF?
Bloomberg Senior ETF Analyst Eric Balchunas stated in the early morning of May 23 that we could possibly see the approval of the first Ethereum Spot ETF 19b-4 document (exchange rule change) by the US SEC before 4 p.m. EST on May 23, which is 4 a.m. on Friday in Taiwan.
He wrote in a tweet:
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Balchunas’ prediction has garnered high attention due to his successful prediction of the approval timelines for Bitcoin futures and spot ETFs in the past. Another Bloomberg ETF analyst, James Seyffart, stated that he is “almost certain” that the SEC will officially approve the 19b-4 document by 6 p.m. EST tomorrow (6 a.m. Friday Taiwan time).
However, it should be noted that even if the SEC approves the 19b-4 document this week, another important key, the S-1 (registration statement), may take longer. Therefore, it may still take several weeks to months before we see the official listing of the Ethereum Spot ETF.
Bernstein: ETH could reach $6,600
Additionally, analysts Gautam Chhugani and Mahika Sapra from research firm Bernstein predict that the approval of the Ethereum Spot ETF will drive ETH to surge by 75% to $6,600.
Standard Chartered Bank: ETH may exceed $8,000 by the end of the year
Geoff Kendrick, Head of Foreign Exchange Research and Digital Asset Research at Standard Chartered Bank, expects that by 2024, the price ratio between Ether and Bitcoin will remain at 5.4%. If BTC reaches $150,000 by the end of the year, the price of Ether could reach $8,000.
Nexo: ETH may reach $10,000 by the end of the year
Andrey Stoychev, Head of Brokerage at cryptocurrency lending platform Nexo, stated earlier this week that the introduction of an ETF will be a significant catalyst for ETH and may drive it to rise to $10,000 by the end of the year.
How to buy an Ethereum Spot ETF?
Currently, the Financial Supervisory Commission in Taiwan does not allow Taiwanese investors to purchase overseas cryptocurrency ETFs through Taiwanese securities brokers due to the volatility and risks associated with cryptocurrency commodity prices. They can only sell spot and futures-related commodities linked to cryptocurrencies through brokers. Whether Taiwanese investors will be able to buy overseas cryptocurrency ETFs through Taiwanese securities brokers in the future is still under further discussion by the Financial Supervisory Commission. Chairman Huang Tien-mu previously stated that virtual assets do not have intrinsic value but have high volatility. Before the end of April, he asked the Securities Association to discuss whether it is feasible to include spot ETFs linked to Bitcoin in the complex commission. However, there have been no updates on this matter yet.
What are the differences between spot ETFs and futures ETFs?
Currently, there are already Ethereum futures ETFs being issued in the market. The main difference between spot ETFs and futures ETFs is that spot ETFs track the price fluctuations of the spot market, and in terms of earning income, there is no difference between buying spot Bitcoin and Ethereum. On the other hand, futures ETFs track futures contracts, which may have contango or backwardation. Therefore, for ordinary investors, futures ETFs have a higher threshold.
Issuance models for spot ETFs
When reviewing Bitcoin spot ETFs in the past, the US SEC discussed two issuance models: cash creation and in-kind creation.
In the cash creation model, Authorized Participants (APs) create or redeem shares of Bitcoin spot ETFs using cash. This means that Authorized Participants provide cash to the ETF fund manager, who then uses the cash to purchase Bitcoin. The impact of this model is that it may increase costs and tax complexities associated with cash flows. Capital gains tax issues may arise due to cash transactions. Additionally, cash redemptions may affect the tracking accuracy between the ETF and the actual market price of Bitcoin.
However, in the in-kind creation model, Authorized Participants create or redeem shares of Bitcoin spot ETFs using actual Bitcoin. This means that Authorized Participants directly give Bitcoin to the ETF in exchange for newly created ETF shares or, in redemption, exchange ETF shares for the corresponding amount of Bitcoin.
The impact of this model is that it avoids tax issues arising from cash transactions and better maintains consistency between ETF assets and the market price of Bitcoin.
Finally, the US SEC ruled that US Bitcoin spot ETFs can only adopt the cash creation and redemption model, while Bitcoin and Ethereum spot ETFs in Hong Kong are allowed to use both models. However, the decision on which model the US Ethereum spot ETF will adopt has not been determined yet.
According to data provided by Bloomberg ETF analyst James Seyffart, a total of ten applicants have submitted Ethereum spot ETF applications to the SEC. The issuers approaching the deadline for review are VanEck, Ark/21Shares, and Grayscale. The SEC will make the final decision to approve or reject on May 23, 24, and 30, respectively.
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