Analysts Downgrade Ethereum ETF Approval Odds Due to Lacklustre Engagement

After the SEC’s approval of Spot Bitcoin ETFs in January 2024, there has been hope for a similar outcome for Spot Ethereum ETFs.
Analysts say subdued sentiment and the lack of progress as the deadline approaches have made them less optimistic about its approval.
Lawyer criticises the SEC’s lack of sufficient justification over spot/futures correlation.
With comments from the SEC chair, it seems unlikely that the SEC will easily change its position.

After the US Securities and Exchange Commission (SEC) approved the Spot Bitcoin ETFs in January 2024 by a 3-2 vote, many in the industry had raised hopes that a Spot Ethereum ETF is sure to follow.

Related: London Stock Exchange to Launch Bitcoin and Ethereum Notes, Excludes Retail Investors

But the vibes are different this time around, Bloomberg ETF analyst Jame Seyffart said on X:

This Ethereum ETF cycle feels like the opposite of Bitcoin ETF approval odds at the moment. The more we see/hear (and don’t see/hear) the less optimistic I become. We’re ~73 days from the deadline and there really seems to be little to no movement.

James Seyffart

Senior Bloomberg ETF analyst Eric Balchunas chimed in saying the odds of approval by May are down to just 35%. He stressed this doesn’t mean no approval at all. But he stated, “all the signs/sources that were making us bullish 2.5mo out for btc spot are not there this time.”

Surely The SEC Will Approve? Right? Right?

ETH proponents cited valid arguments for why the regulator would surely approve this—after all, they have allowed Future Ethereum ETFs.

Chief Legal Officer at Variant Fund and attorney Jake Chervinsky questions the SEC’s rationale.

While acknowledging that the SEC’s concerns regarding the correlation between spot and futures markets aren’t entirely baseless, he criticised their approach as inadequately justified and not entirely persuasive.

He further notes that the appellate court’s ruling doesn’t conclusively address the adequacy or appropriateness of the spot and futures markets’ correlation for the products in question.

Chervinsky emphasises that the crux of the DC court’s decision was the SEC’s failure to adequately substantiate its denial on the basis of spot and futures market correlation concerns, rather than a clear stance on the correlation issue itself.

[The SEC] has a wrong but not insane basis for denial re: spot/futures correlation, which might be foreclosed by the Grayscale opinion, but not necessarily given how the DC Circuit framed its ruling as a failure by the SEC to justify its position, not as an absolute judgment on the correlation issue.

Jake Chervinsky

SEC To Continue War on Crypto?

In addition, Chervinsky views the SEC as a regulator that dislikes crypto, trying to please anti-crypto politicians and has shown “little effort to work on the details necessary for approval and listing.”

According to the lawyer, another scenario is that the SEC may come up with reasons not to approve, going beyond the topics in the Grayscale case—additionally, the SEC has shown its willingness to take things to court and be viewed “as ’fighters’ in a war against crypto rather being accused of rolling over.”

All of this does not mean Spot Ethereum ETFs will not get approved eventually—but these opinions by lawyers and ETF experts should make us aware that the SEC is not likely to give up without a fight.

Related: Bitcoin Reaches Fresh New High as Ethereum Passes $4k Mark

In an interview SEC boss Gary Gensler recently hinted at that when he basically said the reason for the Spot Bitcoin ETF approval was the court decision:

And I thought the most sustainable thing forward was to approve these given the court ruling.