Cryptocurrency exchange Coinbase believes there is a 30% to 40% chance that the SEC will approve a spot Ethereum ETF by the end of this month.
In a May 15 report, Coinbase institutional research analyst David Han argued that the key factors leading to the SEC approving a spot Bitcoin ETF were: — Correlation between CME futures products and spot rates — We may end up approving a spot Ethereum ETF.
“There is room for surprise on the positive side of this decision,” Han said, both in prediction markets and the fact that the Grayscale Ethereum Trust is trading at a 24% discount.
He acknowledged that the SEC’s silence has created “uncertainty” and makes it unlikely that a spot ETH ETF targeting participation in ETH staking will receive approval.
Politics is one of the possible factors
Coinbase is bullish in part because of the cryptocurrency’s central role in U.S. politics. Han said the SEC would expend political capital by rejecting a spot ETH ETF, a strategy Coinbase believes is uncertain.
Bankless founder Ryan Sean Adams echoed this sentiment, saying Democrats “had low expectations for approval until they realized that an anti-crypto SEC chairman could lose the election.”
Neither man explained specific political developments. However, a recent survey found that cryptocurrency owners slightly prefer Trump over Biden. Uniswap founder Hayden Adams described cryptocurrencies as a rallying point for Republicans in contrast to the Biden administration’s regulatory approach.
SEC Chairman Gensler and two other voting members are Democrats, and two other voting members are Republicans, giving the agency Democratic leadership and a majority.
Approval may be delayed.
Han pointed out that the SEC does not need to approve all in-kind applications at once.
Decision deadlines vary for each spot ETH ETF application. The SEC must first decide on VanEck’s application by May 23, but could decide on BlackRock and Fidelity’s applications as late as August.
Han also argued that May’s refusal23 could lead to legal action to overturn the decision.
Last January, SEC Chairman Gary Gensler cited Grayscale’s lawsuit over GBTC’s conversion proposal as one of the factors behind the agency’s approval of a spot Bitcoin ETF. However, Grayscale has not indicated that it will file a similar lawsuit against the spot ETH ETF.
Bloomberg’s Balchunas responds.
Bloomberg analyst Eric Balchunas commented on Coinbase’s contrarian and bullish stance:
“It’s like a way to get out of a money call option to give yourself a bad name if something happens to happen. There is no harm if they are wrong. “A risk-free PR move.”
He concluded that his and his colleagues’ predictions were “reputably braver and riskier than (random, last-minute) contrarian predictions.”
Balchunas posted a lower estimate on May 14, saying the chances of a spot ETH ETF being approved were “completely slim.” In late March, he predicted a “very pessimistic” 25% chance of approval.
Crowd-based estimates provide similarly low probabilities. As of this writing, Polymarket’s approval probability is 10%, down from 16% at the time of Coinbase’s report.