Crypto industry experts believe that Ethereum (ETH) spot ETFs will likely be denied approval for public trading by regulators next month.
A refusal would likely mean that US investors will not receive any such product until December 2024 at the earliest, placing the digital currency well behind Bitcoin (BTC) in terms of Wall Street adoption.
Why are Ethereum ETFs unlikely?
Sources contacted by Reuters say the few meetings between the Securities and Exchange Commission (SEC) and aspiring Ethereum ETF issuers have been one-sided.
Agency staff did not discuss substantial details about the proposed products, although the deadline for applications sent by VanECK and ARK is less than a month away.
That stands in stark contrast to internal conversations leading up to the approval of Bitcoin spot ETFs in January, during which regulators helped sponsors refine their requests for months around details such as in-kind or cash redemptions.
“It seems more likely that approval will be delayed until later in 2024, or longer,” said Todd Rosenbluth, head of ETF analysis at VettaFi. “The regulatory picture still seems unclear.”
Sources say ETF issuers' arguments for approval mainly relate to the listing of Ethereum futures ETFs in October, setting a precedent that ETH-based investment products are safe enough for the markets public.
Such arguments mirror those made by Grayscale when it sued the SEC over denial of Bitcoin spot ETFs in 2022. Grayscale's resounding victory in that lawsuit a year later largely inspired the agency to approve the ETFs.
However, the SEC has generally not asked specific counter-questions, implying that it is not considering the requests seriously and will deny them anyway.
Will there be another trial?
“It’s entirely possible that we end up seeing ether ETFs,” one source said. “But not before someone gets turned down and goes to court.”
Earlier this month, Bloomberg ETF analyst Eric Balchunas suggested that Grayscale might not want to fund another lawsuit because its potential financial reward would be less.
“That’s a lot of time and money for something that may only earn a fraction of the aum,” he wrote at the time.
The SEC chairman is an open critic of crypto in his personal capacity, saying it has few unique use cases outside of illicit financial activities and is fundamentally centralized.
According to Bitwise Chief Investment Officer (CIO) Matt Hougan, the SEC could justify its rejection of the Ethereum ETF by saying it had little time to review the product.
“I think that would be the mechanical reason why this would be removed is that they just want to see more data.”
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