Ethereum ETF Dreams Fading: SEC’s Deafening Silence Speaks Volumes

The prospects for the approval of Ethereum (ETH) exchange-traded funds (ETFs) by May have dimmed significantly, according to senior Bloomberg ETF analyst Eric Balchunas.

Speaking with Cointelegraph, Balchunas revealed that he has downgraded the chances of ETH ETF approval to a mere 35%, citing several factors that contribute to this bearish outlook.

TLDR

Bloomberg ETF analyst Eric Balchunas has lowered the chances of Ether ETF approval by May to just 35% due to a lack of communication from the SEC to prospective fund issuers.
The SEC’s silence, with only 73 days remaining until the final deadline, is seen as a negative sign for ETH ETF approval.
SEC Chair Gary Gensler’s stance on Ethereum as a security and his potential unwillingness to face political blowback after approving spot Bitcoin ETFs may also contribute to the reduced likelihood of approval.
The ETF process for Ether feels like the “reverse” of the spot Bitcoin ETF race, with sentiment growing more skeptical rather than bullish.
If the SEC rejects all pending Ethereum ETF applications, the next important date to watch would be the U.S. presidential election on November 5, as a change in leadership could impact the SEC’s stance on crypto ETFs.

One of the primary reasons behind Balchunas’ reduced optimism is the lack of communication from the United States Securities and Exchange Commission (SEC) to prospective fund issuers.

With only 73 days remaining until the final deadline, the SEC’s radio silence is seen as a worrying sign. Balchunas emphasized that the approval process typically involves the SEC providing comments and the issuers working on correcting them, which may require refiling and even meetings. The absence of such interactions at this stage is not encouraging.

Yeah our odds of eth ETF approval by May deadline are down to 35%. I get all the reasons they SHOULD approve it (and we personally believe they should) but all the signs/sources that were making us bullish 2.5mo out for btc spot are not there this time. Note: 35% isn’t 0%, still… https://t.co/QWQOGZjDC5

— Eric Balchunas (@EricBalchunas) March 11, 2024

Furthermore, Balchunas pointed to SEC Chair Gary Gensler’s stance on Ethereum as a potential obstacle. Gensler has previously expressed his belief that Ether is a security, which could make him reluctant to approve ETH ETFs unless he changes his view and considers it a commodity like Bitcoin. Additionally, Gensler may be unwilling to face another round of political blowback similar to what he experienced following the approval of spot Bitcoin ETFs and the SEC’s court loss to Grayscale in August 2023.

Balchunas also noted that the ETF process for Ether feels like the “reverse” of the spot Bitcoin ETF race. While the Bitcoin ETF race saw growing bullish sentiment and positive developments, the Ether ETF process seems to be moving in the opposite direction, with skepticism and negative indicators accumulating.

Despite the reduced likelihood of approval, some industry experts remain cautiously optimistic. Matt Corva, general counsel at Consensys, suggested that an ETH ETF denial could be a positive development in the long term, as it would leave the SEC with no arbitrary grounds to battle against other coins.

However, the overall sentiment among analysts and industry observers appears to be leaning towards skepticism.

Major investment banks such as JPMorgan and TD Cowen have also projected unlikely approval by May. Even the crypto market-making firm GSR, which initially estimated a 70% chance of approval, has admitted that their optimism might wane if there is no visible progress in the next month.

If the SEC were to reject all of the pending Ethereum ETF applications outright, Balchunas identified the U.S. presidential election on Tuesday, November 5, as the next crucial date to watch.

A change in leadership, whether it be a new president or a reshuffle within the SEC, could significantly impact the regulatory landscape for crypto ETFs.

Ultimately, Balchunas remains confident that a spot Ether ETF is more a question of when, not if. He believes that approval will eventually happen, but the timing remains uncertain.

As more time passes, the regulatory issues surrounding crypto ETFs are likely to be resolved, paving the way for future approvals.