50% Chance of Spot Ethereum ETF Approval: Good or Bad for Prices?

8 months ago 8

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After the United States Securities and Exchange Commission (SEC) approved a handful of spot Bitcoin ETFs earlier this year, the crypto community has predicted that it would not be long before Ethereum ETFs get the green light.

The anticipation of this decision has sparked much speculation, especially regarding how it could impact Ethereum’s price.

Why the Buzz Around Ethereum ETFs?

Ethereum, the second-largest digital currency, has seen a recent surge in value. On February 20, ETH surpassed $3,000 for the first time since April 2022.

This bullish trend is partially attributed to the growing optimism around the potential approval of a spot Ethereum ETF. According to financial experts, the approval of such an ETF could further integrate Ethereum into the mainstream financial system, potentially increasing its value and attractiveness to investors. After multiple delays, the next deadline for the SEC to approve, deny, or postpone is early-March.

Dave LaValle, head of ETFs at Grayscale, recently assessed the odds of an SEC approval of Ethereum ETFs at 50%. This number is slightly lower than Bloomberg Analyst Eric Balchunas projected in November 2023.

During an interview with The Defiant, Balchunas put the chances of an Ethereum ETF approval at 70%. And this was nearly two months before the Bitcoin ETFs themselves were approved.

“I don’t see any reason for [the SEC] to deny [spot Ethereum ETFs] given they have approved the [futures Ethereum ETFs]…It would be illogical and technically they could open themselves up for another lawsuit,” Balchunas said.

Read more: What Is A Bitcoin ETF?

The lawsuit Balchunas is referring to was when Grayscale took the SEC to court after the commission’s repeated objections to the firm converting its GBTC fund into a spot Bitcoin ETF. The judge in the case sided with Grayscale and said that the SEC’s reasons for rejection were:

“Arbitrary and capricious.”

The SEC has yet to explicitly classify ETH as a security, though its stance remains cautious. Gary Gensler, the SEC Chair, has been an outspoken critic of cryptocurrencies, emphasizing the need for regulatory compliance to safeguard against fraud and market manipulation.

How Might the ETH Price React?

Many analysts are confident that the approval of an ETH ETF could be a catalyst for new price highs. The potential for a wider investor base and increased market legitimacy could drive Ethereum’s value upwards.

Ryan Sean Adams of Bankless highlighted this optimism in a tweet, noting the contrast between the current positive indicators, like L2 acceleration and restaking yields, against past market turmoil.

“ETH just reclaimed $3k! Last time we hit 3k we were sitting on time bombs: Terra collapse, 3 arrows death, CeFi failures, Genesis fiasco, and $10b FTX fraud. This time we’re sitting on L2 hyper acceleration, restaking yields, ETH ETF. What a foundation. $3k is the floor,” he tweeted.

However, others are not so optimistic that an ETH ETF approval would significantly move the price needle—at least not right away. This is precisely what happened to Bitcoin.

Immediately after the Bitcoin ETFs were approved, the price had a quick $2,000 move to the upside, but immediately crashed more than 15% in the hours that followed. It was not until a month later that BTC was able to surpass the price at the time of approval.

Geoff Kendrick, the head of Digital Asset Research at Standard Chartered recently projected that ETH would hit $4,000 before an ETF was approved. He pointed to Ethereum having a smaller market share than Bitcoin.

“These factors should make ETH less vulnerable than BTC to a post-approval selloff,” Kendrick added.

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