Ethereum Spot ETF: The Next Approved Crypto Assets Investment Product?

More than a month after the U.S. Securities and Exchange Commission ( SEC ) historically approved 11 Bitcoin Spot ETFs, the encryption industry is anticipating that an Ethereum Spot ETF could receive similar approval as early as May this year.

According to multiple interview results, not only the Crypto Assets industry but also some securities lawyers and traditional Wall Street participants hold an optimistic attitude towards the approval prospects of the world's second-largest digital asset Spot product in 2024.

However, there are also skeptical voices. Some have pointed out that the SEC chairman's attitude towards the legitimacy of Ethereum has been somewhat ambiguous, believing that it may be an unregistered digital security, making it unsuitable for ETFs. Another concern is that, compared to Bitcoin, Ethereum lacks a broad foundation and institutional support in the financial industry.

Nevertheless, several securities lawyers have stated that the approval process for the Bitcoin Spot ETF provides a blueprint for the approval of the Ether ETF. Marc Powers, a blockchain professor at the Florida International University College of Law, believes that when the same factors from the Bitcoin Spot ETF approval are at play here, the SEC will find it difficult to come up with new reasons to deny the Ethereum Spot ETF.

In August of last year, the crypto assets management company Grayscale won its appeal against the SEC, paving the way for nearly ten spot Bitcoin ETFs to be approved in January this year. The Washington D.C. appellate court supported Grayscale's argument, stating that the SEC's refusal to allow its Bitcoin trust to be converted into a spot ETF was "arbitrary and capricious."

The SEC approved a Bitcoin futures ETF in 2021, but the court questioned the commission's claims regarding the essential differences between Spot ETFs and futures ETFs. Grayscale's victory is seen as a significant milestone for the Crypto Assets industry and has also prompted other issuers to launch their own Bitcoin Spot products.

Industry insiders believe that another reason the SEC may have a positive attitude towards Ethereum Spot ETFs this year is the growing demand from Wall Street's big firms. Currently, several companies managing a total of $13.5 trillion in assets have applied to launch Ethereum Spot ETFs.

Andrew Keys, co-founder of DARMA Capital, pointed out that Ethereum, as a unique product, has long-term commercial value among many Wall Street firms and fintech companies. As of recently, the price of Ethereum is $2837, while the price of Bitcoin is $52301, with both accounting for over 50% of the nearly $2 trillion global Crypto Assets market.

The existence of the Ethereum futures market is also considered one of the reasons why the SEC finds it difficult to reject a Spot Ethereum ETF. Marc Powers stated that the CME's Bitcoin futures market provides oversight tools to prevent manipulation in the spot market, which is a key factor in the approval of a Spot Bitcoin ETF. The CME launched Bitcoin futures in 2017 and Ethereum futures in 2021.

However, there are also views that approving the Ethereum Spot ETF in 2024 may be overly optimistic. SEC Chairman Gensler's ambiguous stance on whether Ethereum is a security is seen as a potential obstacle. After Ethereum upgraded to the PoS mechanism in 2022, Gensler hinted that PoS tokens could constitute investment contracts subject to securities law.

Investment bank TD Cowan predicts that the SEC will eventually approve the Ethereum Spot ETF, but it may have to wait until after the November elections. Analysts believe that Gensler's political ambitions may influence his decisions.

Regardless, with the continuous development and maturation of the Crypto Assets market, the approval of the Ethereum Spot ETF seems to be just a matter of time. This will provide investors with more opportunities to engage with the second largest Crypto Asset, while also potentially driving the entire Crypto Assets industry towards a more regulated direction.