The Long Road to Ethereum ETF Approval

The crypto community waited with bated breath last week as the SEC delayed its decision on whether to approve Fidelity’s spot Ethereum ETF. While disappointing for Ethereum bulls, the 45-day extension came as no surprise to many close ETF watchers.

“This is completely expected,” said Bloomberg ETF analyst James Seyffart.

The new deadline of May 23rd aligns closely with predictions that a raft of spot Ethereum ETFs will get the green light in one fell swoop this May.

The Long Road to Ethereum ETF Approval

Following Bitcoin Spot ETF’s Trail

Industry experts point to the approval process for Bitcoin ETFs as a template for what to expect with Ethereum. Last year, the SEC took its time reviewing each Bitcoin application individually before approving several spot Bitcoin ETFs simultaneously in October.

Read more: Navigating Bitcoin ETFs in the Emerging Bull Market

Now, with at least nine spot Ethereum ETF applications under review, analysts anticipate the SEC will bundle these together and make an omnibus ruling around late May.

“I still expect we will see an ETH spot ETF approval during that last week of May, potentially multiple approvals,” said Will Clemente, co-founder of research firm Reflexivity Research.

Beyond spot exposure, issuers are cooking up ways to deliver leveraged and inverse Ethereum exposure via ETF wrappers. Just in the past few weeks, REX Shares, ProShares, and Direxion have filed for SEC approval of five leveraged Bitcoin ETFs each.

These filings signal there is substantial pent up demand from both issuers and investors for crypto-linked ETFs offering magnified exposure, either on the long or short side. Once spot Ethereum ETFs are trading, it likely won’t take long for leveraged variations to follow.

Spot Ethereum ETFs: Why So Slow?

In the interim, the lack of spot Ethereum ETFs continues to perplex some investors. After all, Ethereum has firmly established itself as the second largest crypto with a market cap over $200 billion. Its blockchain processes an average of 1.5 transactions per second, demonstrating immense real-world utility.

Perhaps regulators harbor special concerns around Ethereum’s leading role in decentralized finance (DeFi) and non-fungible tokens (NFTs), two controversial market segments. However, the most straightforward explanation seems to be that the SEC is simply taking a methodical approach.

“This is a very complex, very new asset class and the SEC wants to get it right,” said Todd Rosenbluth, head of research at VettaFi.

The drawn-out approval process may frustrate investors, but likely benefits both markets and investors in the long run. Not rushing to judgement allows the SEC to properly evaluate issues around custody, liquidity, arbitrage mechanisms and more.

Spot Ethereum ETFs: Why So Much Interest?

Despite the delays, asset managers continue lining up to launch spot Ethereum ETFs. In addition to Fidelity, heavy hitters like VanEck and Grayscale have also applied for approval. What exactly is driving this surging interest?

1. Increased Adoption

For one, Ethereum adoption continues growing at a breakneck pace. The Ethereum network settled $50 billion worth of transactions per day in August 2022, a 650% increase versus one year prior.

Investors now appear to view Ethereum like the financial bedrock for Web3.0, underpinning areas from decentralized computing power to tokens and NFTs. This expanding real-world usage brings confidence that demand for Ethereum exposure will be sustained.

2. Staking Opportunities

Some believe that Ethereum’s recently introduced proof-of-stake model is also raising its investment appeal. Under this system, Ethereum holders can “stake” their coins to help validate transactions on the network in exchange for newly minted tokens.

Essentially anyone holding the physical asset can now generate crypto yield. Asset managers seem eager to offer access to staking rewards via fund wrappers. A spot Ethereum ETF could enable investors to gain staking exposure without needing to navigate the complexity of running their own validator nodes.

3. Mainstream Accessibility

Additionally, a spot Ethereum ETF would deliver exposure to this high growth asset in a traditional investment vehicle readily accessible to most investors. This could significantly expand Ethereum’s investor base beyond early crypto adopters.

Surging interest from financial advisors supports this idea. Advisors are ramping up cryptocurrency allocations in client portfolios, with 62% recommending some crypto exposure in 2023 compared to 50% in 2022. However, advisors overwhelmingly favor using ETFs versus owning coins directly.

Read more: Unlocking Ethereum’s Potential: Exploring the Dencun Upgrade and its Impact on Price

The Long Road to Ethereum ETF Approval

As decision day inches closer in May, analysts seem increasingly bullish on prospects for Ethereum ETF approvals. Nonetheless, uncertainty lingers until the final ruling is issued.

“While I think it is likely the SEC will ultimately approve this and other spot Ethereum ETFs, the timing remains uncertain,” cautioned Nate Geraci, president at advisory firm The ETF Store.

In today’s crypto Wild West, nothing is guaranteed. But with so many reputable issuers tossing their hats in the ring, fundamentals firmly backing Ethereum, and the Bitcoin precedent set, the odds seem favorable for Ethereum ETF lift-off this spring. Then the doors open for more exotic iterations like leveraged and inverse exposures.

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