26 Apr, 2024

Ethereum ETF Flop Follows Bitcoin ETF Hype

Yulia Zakharchuk
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Julia Zakharchuk
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Ethereum ETF Approval Delay
Key Takeaways
  • Numerous people involved in the Ethereum spot ETF talks suggest that they will not be approved by the SEC any time soon.
  • The Ethereum spot ETF approval delay led to a drop in the price of Ethereum, as many investors expected a similar success to the recent Bitcoin spot ETFs.

Ethereum ETF Approval Delay Follows Bitcoin ETF Fireworks

Numerous parties involved in SEC discussions over Ethereum (ETH) spot ETFs now expect a significant delay in their approval.

Investors expected an Ethereum spot ETF to follow quickly on the heels of the recent Bitcoin spot ETF success.

Bitcoin spot ETFs saw $12.1 billion in inflows during their first quarter of trading.

Rumors of the delay in approval for the Ethereum ETFs caused volatility to spike in the crypto markets.

Ethereum itself dropped as much as 6% on the initial leak of the rumors.

Many investors were betting on the Ethereum ETF approval, so this may only be the start of a more pronounced decline once the full details of the delay are confirmed.

Ethereum Spot ETFs: A Natural Progression?

ARK Investment Management, VanEck and seven more issuers are attempting to list Ethereum spot ETFs.

The ETFs are expected to satisfy a rapidly growing demand from retail and institutional investors for access to cryptocurrencies with high total asset values.

The deadline for the SEC to approve the first round of ETFs is the end of May 2024.

However, the most recent meetings between the SEC and the funds have not been positive.

The SEC staff have not been discussing the substantive details of the proposed ETFs, which is an essential step before final approval.

By contrast, SEC staff demanded highly specific and detailed information in the final weeks leading up to the approval of the Bitcoin spot ETFs.

The substantial nature of these rumors coming from people directly involved in both processes has convinced the broader market that the Ethereum ETFs will see a major delay.

Once the rumors began to spread, the prediction market odds of any Ethereum ETF being approved before May 31st dropped to only 16%.

“It seems more likely that approval will be delayed until later in 2024, or longer. The regulatory picture still seems cloudy.”

Todd Rosenbluth, head of ETF analysis at data firm VettaFi, stated.

SEC Attitude Toward Ethereum Differs From Bitcoin

The different treatment of the Ethereum spot ETFs is the result of how regulators view Ethereum compared to Bitcoin.

Much of the final approval for the Bitcoin spot ETFs was due to regulators perceiving Bitcoin as a traditional store of value.

Ethereum’s appeal is instead its robust functionality, including smart contracts and decentralized applications, and it has a significantly lower total asset value.

When the SEC approved the Bitcoin spot ETFs, they argued that the surveillance mechanisms used for the futures ETFs would be adequate for the spot ETFs as well.

By contrast, they noted that the Ethereum futures ETF market does not offer the same statistical depth. 

Regulators are concerned that this lack of statistical depth and smaller total asset value of Ethereum can not guarantee the same levels of protection from price manipulation.

Securities and Exchange Commission Logo
Securities and Exchange Commission Logo | Reuters

Ethereum spot ETFs: Regulators VS Investors

The final approval of Ethereum spot ETFs will likely come down to the clashing perspectives of regulators and investors.

Regulators are still extremely hesitant to approve assets linked to cryptocurrencies.

Only Bitcoin’s global name recognition has forced the hand of regulators so far, with Ethereum following in its wake.

However, as crypto in general continues to break into the mainstream and Ethereum’s functionality becomes better understood, demand from retail and institutional investors will grow.

In the end, it was a court case that forced the SEC’s hand in the Bitcoin spot ETF approval, so it may be the same for the Ethereum ETFs.

Considering all the relevant similarities between Bitcoin and Ethereum, it is a case that the ETF issuers are likely to win over their SEC counterparts.