Fund managers predict SEC rejection of Ethereum ETFs next week

In
contrast
to
the
enthusiasm
that
preceded
the
approval
of
spot
Bitcoin
ETFs,
reports
over
the
past
few
weeks
suggest
that
optimistic
expectations
for
the
Ethereum
product’s
approval
have
cooled
down.
Speaking
with
Bloomberg
this
week,
Katherine
Dowling,
general
counsel
for
ETF
applicant
Bitwise,
said
she
anticipates
rejection
next
week
due
to
the
lack
of
public
activity
typically
seen
before
approval.

“Most
people
are
universally
expecting
a
disapproval
order,”
Dowling

noted.
“You’re
not
seeing
the
types
of
public
activities
that
you
would
see
if
there
was
going
to
be
an
approval.”

In
a
CNBC
interview,
VanEck
CEO
Jan
van
Eck
also
predicted
a
likely
denial.
Next
week,
the
SEC’s
decision
will
confirm
the
fate
of
VanEck’s
and
Ark
Invest’s
filings.

“We
were
the
first
to
file
as
well
for
Ethereum
in
the
US,
and
we
and
Cathy
Wood,
are
kind
of
the
first
in
line
for
May,
I
guess,
to
probably
be
rejected,”
he

stated.

Unlike
the
frequent
revisions
made
to
spot
Bitcoin
ETF
applications,
there
has
been
minimal
back-and-forth
between
fund
companies
and
the
SEC
regarding
Ether
ETFs.
People
involved
in
the
talks
with
the
securities
agency
reported
that
they
had

braced
for
a
negative
outcome.

In
the
final
month
leading
up
to
the
spot
Bitcoin
ETF
decision,
the
market
buzzed
with
activity.
Fund
managers
engaged
in
fierce
fee
competition,
while
industry
experts
placed
bullish
bets.

Bloomberg
ETF
analysts
James
Seyffart
and
Eric
Balchunas
have
pegged
the
approval
chances
for
spot
Ethereum
ETFs
at
a
mere
25%.
Seyffart
recently
expressed
skepticism
about
a
positive
outcome,
saying
a
nod
is
“not
happening.”

Why
might
the
SEC
decide
to
reject
spot
Ethereum
ETFs?

SEC
Chair
Gary
Gensler
has
not
been
vocal
about
Ethereum
ETF
filings.
However,
he
has

clarified
that
the

approval
of
spot
Bitcoin
ETFs
does
not
set
a
precedent
for
other
crypto
ETFs.
Concerns
about
the
classification
of
most
cryptos
as
securities
remain
a
major
obstacle
to
compliance.

According
to
Scott
Johnsson,
Van
Buren
Capital’s
general
partner,
the
SEC
must
provide
a
clear
and
detailed
explanation
if
they
reject
spot
Ethereum
ETF
filings.
One
potential
reason
for
rejection
could
be
Ethereum’s
classification.

The
obvious
purpose
is
to
potentially
deny
on
the
basis
that
these
spot
filings
are
improperly
filed
as
commodity-based
trust
shares
and
do
not
qualify
if
they
are
holding
a
security.

—
Scott
Johnsson
(@SGJohnsson)

May
14,
2024

The
SEC
has
not
definitively
classified
Ether,
and
its
decision
might
hinge
on
whether
it
considers
Ether
a
security.
If
the
SEC
views
Ether
as
a
security,
then
spot
ETFs
wouldn’t
be
allowed
under
current
regulations.

The
SEC’s
alleged

investigations
into
the
Ethereum
Foundation
and
the
implications
of
Ethereum’s
staking
feature
suggest
a
possible
regulatory
direction.

The
SEC
might
not
approve
all
spot
Ethereum
ETF
applications
at
once:
Coinbase

Despite
the
uncertainty,
Coinbase’s
analyst
David
Han
sees
a
30%
to
40%
chance
of
approval
by
month’s
end.

He
believes
the
correlation
between
CME
futures
and
spot
exchange
rates,
which
was
pivotal
for
Bitcoin
ETF
approvals,
could
similarly
benefit
Ethereum
ETFs.

However,
like
Johnsson,
Han

noted
that
the
SEC
might
focus
on
Ethereum’s
PoS
mechanism
as
a
reason
for
denial
since
regulations
around
staking
are
unclear.
He
suggested
spot
Ethereum
ETFs
enabling
staking
are
unlikely
to
be
approved.

ARK
Invest
and
21Shares
recently
amended
their
S-1
form
for
the
proposed
spot
Ethereum
exchange-traded
fund
(ETF)
by

removing
the
staking
component.
The
move
is
considered
an
effort
to
align
the
filing
with
SEC
preferences.