Bitcoin ETFs spark optimism around Ether ETF, but is it realistic?

Bitcoin ETF approval has given optimism to many about the possibility of a spot Ether ETF soon, but experts caution it could be a lengthy process.

The United States Securities and Exchange Commission (SEC) approved 10 spot Bitcoin exchange-traded funds (ETFs) on Jan. 10, allowing investors in the U.S. to invest in Bitcoin-backed securities. Spot Bitcoin ETFs started trading on public exchanges on Jan. 11, with billions flowing in since.

The approval of spot Bitcoin ETFs was a pivotal moment in Bitcoin’s history after multiple years of rejections. However, with spot Bitcoin (BTC) ETFs now approved, all eyes have turned to spot Ether (ETH) ETF applications, the final deadline for which is in May.

As with spot Bitcoin ETF filings in 2023, major financial institutions, including BlackRock, ARK Invest, Fidelity, Invesco Galaxy and others, are filing for a spot Ether ETF. Ark was the first to file for a spot Ether ETF in September 2023, followed by BlackRock and others.

The SEC postponed its decision on spot Ether ETFs multiple times, which is similar to the numerous delays in deciding whether to approve spot BTC ETFs.

Although seven Ether ETF applicants have different deadlines, the SEC could issue its decision on all applications together, as with the spot BTC ETFs.

With the final deadline approaching, ETF experts and the crypto community are divided on whether a spot ETH ETF will be approved in 2024. 

On the one hand, Bloomberg ETF analyst James Seyffart believes the U.S. securities regulator accepted Ether as a commodity when it green-lit Ethereum futures ETFs.

Thus, it is only a matter of time before the SEC approves an Ether ETF. Senior Bloomberg analyst Eric Balchunas said there is a 70% chance that a spot Ether ETF will be approved by May.

On the other hand, Morgan Creek Capital’s CEO Mark Yusko gives less than 50% odds that a spot Ether ETF will be approved in the U.S. in 2024. Yusko argued that the SEC remains broadly hostile toward cryptocurrencies, as the agency’s Chair, Gary Gensler, suggested in his message on the day the products were approved. He added that the SEC may still regard Ether as a security — unlike Bitcoin (BTC), which is considered a commodity.

Gensler has often argued that all cryptocurrencies except Bitcoin are securities. However, according to Bloomberg analyst James Seyffart, “the SEC has pretty much implicitly accepted Ethereum as a commodity.”

Recent: Ethereum’s ESG properties could boost ETF success

Rika Khurdayan, U.S. chief legal officer at European crypto exchange Bitstamp, told Cointelegraph that she believes the SEC will approve the spot Ether ETF, but the approval process might be lengthier than Bitcoin:

“The approval process, however, may be lengthy as the SEC navigates Ethereum’s unique characteristics compared to Bitcoin, including the underlying technology, its capabilities, and the complex history and circumstances of its creation. I imagine the SEC might also want to observe the Bitcoin ETF market before approving another cryptocurrency ETF.”

Spot Ether ETF is plausible, but questions remain 

Ether has maintained its second spot in crypto market capitalization rankings for years, and there are already Ether futures trading in U.S. markets.

However, the Ethereum blockchain and its functionalities are quite different from Bitcoin, which, according to experts, could be a tricky path for regulators to navigate.

Ether, unlike BTC, doesn’t have a fixed market supply, and the native token also supports staking that allows holders to lock up their Ether for a certain amount of time and receive rewards based on their stake.

Cathy Yoon, general counsel at Web3 development firm the Wormhole Foundation, told Cointelegraph that the SEC will eventually approve an ETH ETF but that the issue of staking is still far from settled:

“A question looms as to whether traditional players are willing to adopt staking practices, especially through the use of staking-as-a-service providers, many of which have come under increased scrutiny from the SEC or for those who self-custody: Will they stake themselves?”

The launch of spot BTC ETFs indicated that the traditional finance market has a good appetite for crypto-based securities, as the products quickly saw billions in daily volume, with the 11 spot Bitcoin ETFs doing three times the daily volume of all 500 ETFs launched in 2023 combined on Jan. 16. But whether a similar trend will follow for Ether remains to be seen.

Let me put into context how insane $10b in volume is in first 3 days. There were 500 ETFs launched in 2023. Today, they did a COMBINDED $450m in volume. The best one did $45m. And many have had months to get going. $IBIT alone is seeing more activity than the entire ’23 Freshman… https://t.co/wV1zQFtPW1

— Eric Balchunas (@EricBalchunas) January 16, 2024

Despite current challenges with the SEC, the belief that a spot Ether ETF will be approved in 2024 stems from several factors: the parallel listing and regulation of Bitcoin and Ethereum futures, which have seen record participation from large traders in the past year, position them as comparable assets in the eyes of the SEC. Furthermore, the anticipation of continued market strength and the growing demand from institutional investors exert additional pressure for regulatory approval. 

BlackRock’s ETF record vs. Garry Gensler

BlackRock played a crucial role in the spot BTC ETF approval. The SEC had rejected several spot Bitcoin ETF proposals before 2023. However, the crypto community gained confidence in a potential green light once BlackRock entered the BTC ETF race with an ETF approval record of 575 approvals to just one rejection.

UPDATE: the last time the SEC rejected a @BlackRock ETF was 2014.

– should be noted that the rejection wasn’t specific to the $BLK filing at the time.
– @BlackRock has an often noted 575 approvals versus 1 (sorta) denial ETF record.
– an early 2024 $BLK $BTC ETF is expected.

— Andrew (@AP_Abacus) September 6, 2023

With the final decision deadline for spot Ether ETFs in May, many wonder whether BlackRock will maintain its record.

Jag Kooner, head of derivatives at Bitfinex, told Cointelegraph that the entry of major financial firms like BlackRock into the Bitcoin ETF market was seen as a positive sign for the overall acceptance of crypto ETFs but warned about the early pushback from regulators:

“Institutional interest tends to validate the market in the eyes of regulators; however, the initial application from Grayscale to convert its Ethereum trust to an ETF and the one from BlackRock has received an SEC pushback. The primary factor could be the categorization of Ether as a security or commodity.”

A potential roadblock in Ether’s road to a spot ETF could be Gensler’s view on the crypto market. Gensler has repeatedly reiterated that he believes every cryptocurrency except Bitcoin is a security.

Recent: Could Bitcoin ETF approvals spark memecoin bull run?

Marc D’Annunzio, general counsel at crypto trading firm Bakkt, told Cointelegraph that Gensler’s approach toward crypto might be a red flag toward other crypto-based ETFs.

“Gensler has carefully pointed out that the recent approvals of spot Bitcoin ETFs were limited to ‘one non-security commodity’ (i.e., Bitcoin). In addition, Gensler has stated several times that he believes most crypto tokens to be securities, and the uncertainty around the commission’s view of ETH seemingly needs to be resolved before a spot ETF can be approved,” he said.

D’Annunzio added that if and when an Ether spot ETF is approved, “it will require regulatory clarity and would benefit from real-world results from the spot Bitcoin ETFs.”