Can Ethereum ETFs Really Pass?

Ritu77

At the beginning of this year, the U.S. Securities and Exchange Commission (SEC) approved the first-ever Bitcoin spot ETF in the United States, with Fidelity being one of the initial 11 issuers. With a precedent set by the approval of the Bitcoin spot ETF, many anticipate that Ethereum's issuance is just a matter of time.

After several postponements of decisions on multiple Ethereum (ETH) applications earlier this year, Bloomberg analyst James Seyffart stated that the SEC has today deferred its decision on the Invesco and Galaxy Ethereum ETF applications, which was fully expected, with more postponements likely in the coming months. He emphasized that the key date for Ethereum ETF spot is May 23, also the final deadline for VanEck's application.

Pessimists

However, with just over fifty days left until the deadline for ETH ETF approval, news emerged that the Ethereum Foundation (the Swiss nonprofit organization at the core of the Ethereum ecosystem) is under investigation by a "national authority." As of the time of writing, the scope and focus of this investigation are unclear due to confidentiality agreements. The Ethereum Foundation has not responded to requests for comment.

A lawyer familiar with the situation suggested that Swiss regulatory authorities may have requested documents from the Ethereum Foundation and may be cooperating with the U.S. Securities and Exchange Commission (SEC). The lawyer indicated that the Ethereum Foundation is not the only entity being asked to provide information; other overseas entities are also under scrutiny.

As a result, some institutions have expressed pessimistic forecasts. Alex Thorn, the Head of Research at Galaxy Digital, stated that the likelihood of approval in May now appears extremely low.

On March 21, a source from a company recently subpoenaed revealed that the SEC's investigation into the Ethereum Foundation, headquartered in Switzerland, began shortly after the blockchain's shift to a new governance model called "proof of stake" in September 2022.

"Proof of stake" enables Ethereum to move away from Bitcoin's energy-intensive model and instead adopt a model relying on a network of trusted validators, providing the SEC with a new pretext to attempt to classify Ethereum as a security, according to three individuals familiar with the subpoenas.

"Given the SEC's relationship with the Ethereum Foundation, which has led to subpoenas being issued to many cryptocurrency companies, coupled with the lack of proactive engagement from the SEC with ETF applicants in the two months before the first deadline, there are significant doubts about approval in May," wrote Alex Thorn in a report on Friday.

On March 27, Fidelity, managing assets worth $4.5 trillion, submitted an S-1 form for the proposed spot Ethereum ETF, including a pledge.

Meanwhile, market maker GSR analyst Brian Rudick also stated in a report on Wednesday that he believes the likelihood of the SEC approving the spot Ethereum ETF in May is 20%, a significant downgrade compared to GSR's January forecast of 75% probability. The analyst said that the U.S. Securities and Exchange Commission is under pressure from some ZZ to refrain from approving more digital asset ETFs. The SEC's investigation into whether Ethereum is a security could significantly reduce the likelihood of approval. Regulatory agencies may seek to avoid turning the potential approval of the Ethereum spot ETF into "another big event." In terms of expectations for the future, the analyst believes that any approval process for spot Ethereum ETFs may take longer and could be affected by litigation events, now estimating that spot Ethereum ETFs are most likely to be approved between 2025 and 2026.

Optimists

It has been reported that the SEC is currently studying whether Ether is a security. Fortune reported earlier this month that regulatory agencies are seeking to classify Ether and have issued subpoenas to several companies as part of the investigation.

However, BlackRock CEO Larry Fink has expressed great optimism and confidence in the possibility of Ethereum ETF approval. Larry Fink, CEO of BlackRock, stated that even if the U.S. Securities and Exchange Commission designates cryptocurrencies as securities, an Ethereum ETF is still possible, which would strengthen regulatory scrutiny surrounding the second-largest digital asset.

On social media, on-chain data analyst Q (@tocuee) revealed that he discovered behavior in ETH similar to that before the approval of the BTC ETF in 2023. Over the past 24-48 hours, more than $1 billion worth of ETH has been withdrawn from CEX, and this large and sustained withdrawal behavior has been observed for some time, first seen in December of last year.

The similar behavior of these addresses includes: new addresses, large amounts, involvement of exchanges such as Kraken and Coinbase, which are mainstream exchanges in Europe and the United States, as well as Binance and Okx. Combining this news with Fidelity's submission of the S-1 application form for the ETH ETF, Q speculated that the ETH ETF is highly likely to be approved.

Currently, eight potential issuers, including BlackRock, have submitted documents to the SEC to bring spot Ethereum ETFs to market. The regulatory agency's final decision is expected in May, with industry experts predicting that the application will not be approved regardless of how the SEC views Ethereum's nature.

At the time of writing, the price of ETH is $3503. Bitcoin has dominated the entire cryptocurrency market so far this year, with various "Ethereum killers" like Solana also vying with Ethereum. Compared to the overall bullish sentiment in the cryptocurrency market, the Ethereum community's sentiment is not particularly positive. "Can't the Ethereum ETF save the weak ETH?" the Ethereum community wonders.

Sona59

It's still highly likely to get approved.