On January 10, the United States Securities and Exchange Commission (SEC) granted approval for 10 spot Bitcoin exchange-traded funds (ETFs), marking a significant milestone in Bitcoin’s history. These ETFs allow U.S. investors to invest in Bitcoin-backed securities. The following day, on January 11, spot Bitcoin ETFs began trading on public exchanges, attracting billions of dollars in investments.
This approval of spot Bitcoin ETFs comes after years of rejections, making it a momentous occasion for the cryptocurrency. Now that spot Bitcoin (BTC) ETFs have been approved, attention has shifted to spot Ether (ETH) ETF applications, which have a final deadline in May.
Similar to the spot Bitcoin ETF filings in 2023, major financial institutions such as BlackRock, ARK Invest, Fidelity, Invesco Galaxy, and others are filing for spot Ether ETFs. Ark was the first to file for a spot Ether ETF in September 2023, followed by BlackRock and others.
The SEC has delayed its decision on spot Ether ETFs multiple times, mirroring the numerous delays in approving spot BTC ETFs. Although the seven Ether ETF applicants have different deadlines, the SEC may issue its decision on all applications simultaneously, as it did with the spot BTC ETFs.
With the final deadline approaching, there is a division of opinions among ETF experts and the crypto community regarding the approval of a spot ETH ETF in 2024. Bloomberg ETF analyst James Seyffart believes that the SEC has accepted Ether as a commodity when it approved Ethereum futures ETFs. Therefore, it is only a matter of time before an Ether ETF is approved. Senior Bloomberg analyst Eric Balchunas estimates a 70% chance of approval by May.
On the other hand, Mark Yusko, CEO of Morgan Creek Capital, gives less than 50% odds of a spot Ether ETF being approved in the U.S. in 2024. Yusko argues that the SEC remains generally hostile toward cryptocurrencies, as indicated by Chair Gary Gensler’s message on the day the Bitcoin ETFs were approved. Yusko adds that the SEC may still view Ether as a security, unlike Bitcoin, which is regarded as a commodity.
Gensler has consistently stated that all cryptocurrencies, except Bitcoin, are securities. However, according to James Seyffart, the SEC has implicitly accepted Ethereum as a commodity.
Ether has maintained its position as the second-largest cryptocurrency by market capitalization for years, and there are already Ether futures trading in U.S. markets. However, the Ethereum blockchain and its functionalities differ significantly from Bitcoin, posing a challenge for regulators to navigate.
Unlike BTC, Ether does not have a fixed market supply, and the native token supports staking, allowing holders to lock up their Ether for a specific period and earn rewards based on their stake.
Rika Khurdayan, U.S. chief legal officer at European crypto exchange Bitstamp, believes that the SEC will approve a spot Ether ETF, although the approval process may be longer than that of Bitcoin. She suggests that the SEC may want to observe the Bitcoin ETF market before approving another cryptocurrency ETF, considering Ethereum’s unique characteristics.
While challenges exist 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, along with their record participation from large traders, position them as comparable assets in the eyes of the SEC. Additionally, the anticipation of continued market strength and growing demand from institutional investors adds pressure for regulatory approval.
BlackRock played a crucial role in the approval of spot BTC ETFs. Prior to 2023, the SEC had rejected several proposals for spot Bitcoin ETFs. However, the entry of BlackRock into the BTC ETF race, with its impressive ETF approval record, instilled confidence in the crypto community.
As the final decision deadline for spot Ether ETFs approaches in May, there is speculation about whether BlackRock will maintain its record. Jag Kooner, head of derivatives at Bitfinex, sees the entry of major financial firms like BlackRock into the Bitcoin ETF market as a positive sign for the acceptance of crypto ETFs. However, he warns about the initial resistance from regulators.
One potential obstacle for an Ether spot ETF is Gensler’s view on the crypto market. Gensler has consistently expressed the belief that every cryptocurrency, except Bitcoin, is a security. Marc D’Annunzio, general counsel at crypto trading firm Bakkt, suggests that Gensler’s stance could pose a challenge for other crypto-based ETFs.
D’Annunzio adds that if and when an Ether spot ETF is approved, it will require regulatory clarity and benefit from real-world results from the spot Bitcoin ETFs.