Is there still hope for an Ethereum spot ETF? What risks is the SEC blocking?

In early March, the US SEC postponed its decision on BlackRock and Fidelity's Ethereum spot ETF, pushing the SEC's final decision date back to May 23. This can't help but remind people of the twists and turns in the approval process of the Bitcoin spot ETF. At the same time, Ethereum's rise does not seem to be as strong as Bitcoin, which seems to reflect the buyer's hesitation about this "major good news" to a certain extent.

It is not difficult to find from the price trend of Bitcoin in the past year that the spot ETF has played a huge role in promoting it. Since many asset management companies applied for Bitcoin spot ETF last year, the market has responded in advance to its approval, which has caused the price of Bitcoin to rise from 25,000 USDT, until it broke through 70,000 USDT recently after landing.

From this, it can be seen that the spot ETF of crypto assets has a high lifting effect on the price of the asset.

In addition, BlackRock’s Bitcoin holdings have surpassed MicroStrategy’s just two months after the spot ETF was approved. The increase in holdings by traditional asset management companies has increased demand for tokens, and price increases have become a high-probability event.

So, as the approval time of Ethereum spot ETF approaches, will it also repeat the previous situation of Bitcoin spot ETF? What are the obstacles that currently affect the approval of Ethereum spot ETF? Odaily Planet Day sorts out the views in the market and judges the possibility of Ethereum spot ETF being approved in the near future.

Market sentiment is not optimistic, whether Ethereum is recognized as a "security" is a determining factor

As the decision on the Ethereum spot ETF approaches, discussions about it are gradually increasing in the market, but there are rarely the "overwhelmingly positive" views like before the approval of the Bitcoin spot ETF. On the contrary, most people are not optimistic about it.

Recently, FOX Business reporter Eleanor Terrett said on social media that optimism about the SEC approving the ETH spot ETF by May 23 is waning. She also revealed the phenomenon observed by relevant insiders, "The meetings in recent weeks have been largely one-sided, with issuers and custodians trying to encourage SEC staff to push the process forward, but the staff have not really participated in a meaningful way (as they did when processing the BTC spot ETF application)."

Terrett also heard that SEC Chairman Gary Gensler thought he had appeased the entire industry by approving a BTC spot ETF. And influential anti-cryptocurrency politicians (such as Senator Elizabeth Warren, etc.) are already angry about the US SEC approving a BTC ETF and are rallying against a similar situation happening to Ethereum.

Judging from Terrett’s statement, the SEC’s official attitude towards the Ethereum spot ETF is relatively cold, and anti-cryptocurrency politicians are more opposed to the Ethereum spot ETF.

Eric Balchunas, an ETF analyst at Bloomberg who previously provided opinions on Bitcoin spot ETF, also expressed that he was not optimistic about the approval of Ethereum spot ETF. He believed that the SEC had not yet given any comments to the applicant, which was inconsistent with the previous situation of Bitcoin spot ETF. In addition, compared with the previous judgment of the US court on the spot Bitcoin ETF lawsuit, the US SEC did not have the problem of losing the Ethereum ETF, and the correlation between Ethereum spot and futures was not as strong as that of Bitcoin ETF, so the final situation might not be optimistic.

Judging from Eric's statement, the SEC is not active in the application for Ethereum spot ETF, and the SEC has no restrictions on the issue of Ethereum.

Variant Fund Chief Legal Officer Jake Chervinsky said on the X platform that he does not have high expectations for the SEC to approve the Ethereum spot ETF in May. The current legal issues and policy environment among US regulators will make it more likely that the spot Ethereum will not be approved. If the spot Ethereum ETF is not approved in May, the market can pay attention to the August deadline.

However, Galaxy Digital founder and CEO Michael Novogratz expressed optimism about the approval of the Ethereum spot ETF. Novogratz expects the spot Ethereum ETF to be approved by the SEC this year, and Galaxy is working with Invesco to seek to provide Ethereum ETF services.

In early March, Coinbase met with US SEC officials to discuss Grayscale's proposal to convert the Ethereum Trust Fund into a spot ETF. Coinbase believes that potential Ethereum ETF shares should be classified as commodity-based shares, the same as Bitcoin ETFs. Coinbase also stated that the ETH spot market highly demonstrates the market's tolerance to fraud and manipulation, and Coinbase will reach a supervisory sharing agreement with CME to assist in investigating fraud and manipulation. However, the SEC has not yet responded.

In an interview with the media, Steven McClurg, chief investment officer of Valkyrie, believes that the spot Ethereum exchange-traded fund may not appear soon, but may be approved in the next one or two years. And McClurg believes that regulators and the SEC have just approved the Bitcoin spot ETF and need some time to understand the encryption industry.

In fact, from the above remarks, it can be seen that the first issue facing the approval of the Ethereum spot ETF is what the SEC thinks of it. Whether Ethereum is recognized as a "security" will be a key factor.

What are “securities” in the eyes of the SEC?

Before 2022, the SEC said that the classification of digital assets depends on their specific characteristics and uses. SEC officials generally emphasize that the judgment of whether a digital asset is a security needs to be evaluated based on how it operates in transactions and the extent to which investors expect to make profits from it.

According to the SEC’s previous statement, Ethereum’s ICO in 2014 may be judged as a “security”. Secondly, Ethereum was previously POW, and the tokens had no actual role in maintaining the operation of the Ethereum network. In other words, the tokens themselves could not generate income. But when Ethereum switched from POW to POS, holders participated in network maintenance by staking and earned staking income, which overlapped with the SEC’s previous statement that it was a security.

However, according to the previous statement of SEC Chairman Gary Gensler, in 2018, Gary believed that Ethereum was not a security. However, after Ethereum was converted to POS, Gary has not yet responded to the statement of whether Ethereum is a security.

However, according to Bloomberg ETF analyst James Seyffart, the SEC "implicitly" accepted Ethereum as a commodity when it approved the Ethereum futures ETF last year. At the same time, Seyffart also said that if Ethereum is regarded as a security again, it will be contrary to the views of the regulatory agency CFTC.

Gary himself has not made any statement recently on whether the Ethereum spot ETF will be approved, and has also refused to disclose the key point of Ethereum's attributes.

In addition, whether the Ethereum spot ETF can be approved will also be affected by the risks of independent individuals. For example, as the soul of Ethereum, Vitalik's words and deeds will affect the future trend of Ethereum to a certain extent. Assuming that the Ethereum spot ETF is approved, Vitalik has the risk of affecting the instability of the Ethereum spot ETF, which will be a factor that does not need to be considered in the Bitcoin spot ETF. In addition, pledge is also a point that the SEC often "troubles".

In summary, it is more difficult to get approval for Ethereum spot ETF than Bitcoin spot ETF. Compared with the token appreciation before and after the approval of Bitcoin spot ETF, Ethereum did not go out of the independent market due to the ETF speculation expectation. Judging from the current attitude of the SEC, it is unlikely to be approved in the short term, and the final decision may be made after the SEC further "risk pricing" of the crypto industry.