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In contrast to the enthusiasm prior to the approval of the spot Bitcoin ETF, reports over the past few weeks suggest that optimistic expectations about the approval of an Ethereum product have cooled. Katherine Dowling, general counsel for ETF applicant Bitwise, told Bloomberg this week that she expects it to be rejected next week due to the lack of public activity typically seen before approval.
“Most people expect a universal order of disapproval,” Dowling said. “You won’t be able to see the types of public activity you would see if you had permission.”
In a CNBC interview, VanEck CEO Jan van Eck also predicted a possible rejection. An SEC decision next week will confirm the fate of VanEck and Ark Invest’s filings.
“We were the first to file an application for Ethereum in the U.S., and I think we and Cathy Wood are probably the first in line to be rejected in May,” he said.
Unlike the frequent revisions to understand Bitcoin ETF applications, there has been minimal exchange between fund companies and the SEC regarding the Ether ETF. Those involved in negotiations with securities companies said they were prepared for a negative outcome.
In the final month leading up to the spot Bitcoin ETF decision, the market was abuzz with activity. Fund managers fiercely competed for fees, and industry experts bet on strength.
Bloomberg ETF analysts James Seyffart and Eric Balchunas estimated the odds of approval for a spot Ethereum ETF at just 25%. Seyffart recently expressed skepticism about a positive outcome, saying the nod was not happening.
Why did the SEC decide to reject a spot Ethereum ETF?
SEC Chairman Gary Gensler has not spoken out about the Ethereum ETF filing. However, he clarified that the approval of the spot Bitcoin ETF does not set a precedent for other cryptocurrency ETFs. Concerns about classifying most cryptocurrencies as securities remain a major obstacle to compliance.
The SEC should provide a clear and detailed explanation if it rejects a spot Ethereum ETF submission, according to Scott Johnsson, general partner at Van Buren Capital. One potential reason for rejection could be Ethereum’s classification.
The obvious purpose is to potentially reject these in-kind declarations on the basis that they were improperly filed as commodity-based trust shares and that they are ineligible if they hold the securities.
— Scott Johnson (@SGJohnsson) May 14, 2024
The SEC has not definitively classified Ethereum and its decision may depend on whether it considers Ethereum a security. If the SEC deems Ethereum a security, spot ETFs would not be permitted under current regulations.
The SEC’s alleged investigation into the Ethereum Foundation and implications for Ethereum’s staking feature point to possible regulatory directions.
The SEC may not approve all spot Ethereum ETF applications at once: Coinbase
Despite the uncertainty, Coinbase analyst David Han predicted there would be a 30 to 40 percent chance of approval by the end of the month.
He believes that the correlation between CME futures and spot rates, which played a pivotal role in the approval of the Bitcoin ETF, could similarly benefit the Ethereum ETF.
However, like Johnsson, Han pointed out that the SEC could focus on Ethereum’s PoS mechanism as a reason for rejection, as the regulations surrounding staking are unclear. He suggested that a spot Ethereum ETF that enables staking is unlikely to be approved.
ARK Invest and 21Shares recently revised the S-1 form for their proposed spot Ethereum exchange-traded fund (ETF) by removing the staking component. The move is seen as an effort to align filings with SEC preferences.
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