Compared to the Bitcoin spot ETF, market participants are apparently more pessimistic about the possibility of an Ethereum spot ETF being approved. This article is sourced from the article “Is the Ethereum ETF Happening?” by Bankless, compiled, translated, and written by Blockbeats.
(Previous Summary:
SEC delays decision on Fidelity’s “Ethereum spot ETF,” Bloomberg analysts reveal key timing)
(Background Information:
The probability of approving the Ethereum spot ETF this year is less than 50%! Morgan Creek: SEC still considers ETH as a security)
Table of Contents:
Why would an Ethereum spot ETF be rejected?
Will an Ethereum spot ETF be approved?
Is an Ethereum spot ETF bullish?
With the approval and listing of the Bitcoin spot ETF, the approval of an Ethereum ETF has become a topic of discussion. Despite the market’s enthusiasm for the approval of the Bitcoin spot ETF, factors such as GBTC redemptions and traders closing their positions on the approved Bitcoin ETF have had a restraining effect on the price.
Regarding the prospects of the upcoming Ethereum spot ETF, Bankless analyst Jack Inabinet pointed out that there are 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. However, Gensler’s regulatory position on Ethereum is still unclear.
In addition, Jack Inabinet analyzed in detail the differences between futures ETFs and spot ETFs, as well as the reasons why market participants are relatively less optimistic about the approval of the Ethereum spot ETF. He also presented some potential challenges that the market may face. The following is the translation of the original article by BlockBeats:
After a decade of delay and rejection, last week, the U.S. Securities and Exchange Commission (SEC) urgently approved the listing of a Bitcoin ETF on U.S. stock exchanges, bringing joy to the entire crypto industry.
The Bitcoin spot ETF product began trading last Thursday. Although Bitcoin did not generate the “God candle” effect that some people in the crypto industry expected, which is the effect brought by traditional finance imitating our investment, the inflow of funds into the ETF reached the analysts’ expectations, and the newly established tool attracted nearly $2.9 billion in funds.
Despite the $1.2 billion redemption of GBTC and the bet placed by crypto traders on the approval of the Bitcoin ETF, there are two factors currently restraining the price. However, the long-term impact of the approval of the ETF should not be underestimated.
Now, pure exposure to crypto assets can be obtained through every (or at least most) traditional brokerage accounts in the United States, which has never happened before in history, opening the door for a new capital group to buy crypto assets. What’s better is that traditional financial giants, as issuers of these new Bitcoin ETFs, now have financial incentives to promote our assets, or at least Bitcoin, in an attempt to generate more fee income by expanding the asset under management of their products.
With the launch of the Bitcoin spot ETF, traders are now closely watching Ethereum and trying to get ahead before its upcoming spot ETF, whose final approval deadline is May 23.
In the crypto field, there will always be some bull markets, and the narrative has shifted back to Ethereum, leading to a healthy buying interest, which has caused ETH/BTC to rise 25% this week, breaking free from the downtrend that has troubled holders since the merge for a year and a half!
Although traders have started to prepare for the arrival of the Ethereum spot ETF, not everyone is convinced that they will definitely come.
Bloomberg’s senior ETF analyst Eric Balchunas gave the probability of approval only 70%, lower than the 90% probability he gave to the Bitcoin spot ETF.
And more pessimistic is Nikolaos Panigirtzoglou, the global market strategist and head of digital assets at JPMorgan, who believes that the SEC needs to classify Ethereum as a non-security before approving the spot ETF, and he does not believe that the institution has more than a 50% chance of doing so before May.
SEC Chairman Gary Gensler, who was the decisive voter in approving the Bitcoin spot ETF, has consistently insisted that Bitcoin is not a security under federal securities laws, but for Ethereum, he refuses to provide any regulatory clarity.
Some people are worried that Ethereum’s proof-of-stake design and its ability to generate income may mean that it will automatically be considered a security.
There seem to be many skeptics of the approval of the Ethereum ETF online. Fortunately, they are likely to be wrong.
In the crypto field, many people are worried that the SEC will reject the Ethereum spot ETF by classifying Ethereum as a security because the institution has stated that the vast majority of crypto assets are investment contracts subject to federal securities laws. However, the non-security status of Ethereum seems to have been consolidated.
SEC has filed lawsuits against multiple crypto exchanges for listing crypto assets that were considered securities, including tokens from other Layer 1 projects such as SOL, NEAR, and ATOM. None of these enforcement actions listed Ethereum as a potential security.
JPMorgan’s Panigirtzoglou believes that the SEC needs to make a decision on Ethereum’s security status, but the institution approved the Ethereum ETF holding futures contracts in October last year, providing clear information that Ethereum is considered a non-security.
Although the SEC insists that their approval of the Bitcoin spot ETF does not mean that the commission is willing to approve ETFs for other crypto assets, this approval has cleared the way for the Ethereum spot ETF!
The core of Chairman Gensler’s approval of the Bitcoin spot ETF is the decision of the U.S. Court of Appeals that the proposed Bitcoin spot ETF by Grayscale should be treated similarly to the two approved Bitcoin futures ETFs because they are sufficiently similar. With the approval of futures ETFs for Ethereum, just as they did for Bitcoin, the decision of the U.S. Court of Appeals has created a precedent that is likely to prevent the SEC from denying the Ethereum ETF due to concerns about fraud or manipulative trading practices, which is their reason for denying previous Bitcoin ETF applications.
In addition, the legal precedent established by the SEC’s lawsuit against Ripple found that digital tokens themselves do not meet the Howey test, and they are only securities when sold as investment contracts. This makes concerns about Ethereum’s ability to generate income from staking unrelated to the approval of the Ethereum spot ETF, as this type of transaction is not subject to securities laws involved in Ethereum staking.
The approval of the Ethereum spot ETF may have a bullish long-term impact, but there is also a high probability that it will be a sell-the-news event. Even Bitcoin, whose ETF debut largely met analysts’ expectations, has already fallen 12% from its listing high.
When the Ethereum futures ETF was launched last year, the demand for the Ethereum futures ETF was disappointing. The entire group could only achieve a trading volume of $1.7 million in the first few hours of listing, while Bitcoin futures and spot products could generate hundreds of millions of dollars in trading volume in the first few hours of trading, which is quite contrasting.
Although futures products are not as attractive as spot products because they expose investors to the effects of contango and backwardation (i.e., the price of the next month’s contract may be higher or lower than the price of the expiration contract), the lack of demand from traditional financial market participants for Ethereum exposure may indicate that there will also be insufficient demand for spot products in the future.
Issuers will need to attract organic demand for their Ethereum spot ETF products to succeed, and it is currently unclear where they intend to find it. Perhaps traditional finance intends to create this demand by selling Ethereum to the general public on CNBC.
Although it is unclear how much demand the Ethereum spot product will receive, market participants are apparently more pessimistic about the approval of the Ethereum spot ETF than they are about the approval of the Bitcoin spot ETF.
Unexpected approval may make investors realize their position is wrong and cause them to imitate Ethereum, which means that the debut of Ethereum’s spot ETF, unlike Bitcoin, which debuted in the first six months due to massive inflows of funds from traders seeking approval, has the potential for a bullish unlocking possibility.
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