Spot Ethereum ETF Odds And Timing Are ‘Underestimated’, Says Coinbase

Coinbase
Research
has
issued
a
detailed
report,
written
by
David
Han,
emphasizing
that
the
likelihood
and
timing
of
a
US
spot
Ethereum
(ETH)
exchange-traded
fund
(ETF)
approval
are
significantly
underestimated
by
the
market.
The
potential
approval
of
such
an
ETF
is
poised
to
bring
profound
changes
to
Ethereum’s
market
dynamics.

The
Case
For
A
Spot
ETH
ETF
Approval

The

report
delves
into
the
critical
importance
of
a
spot
ETH
ETF,
drawing
parallels
with
the
successful
approval
of
spot
BTC
ETFs
in
the
US.
The

introduction
of
spot
Bitcoin
ETFs
has
provided
regulatory
clarity
and
attracted
significant
capital
inflows,
reinforcing
Bitcoin’s
status
as
a
macro
asset.
Similarly,
a
spot
ETF
would
open
Ethereum
to
the
same
capital
pools
that
currently
favor
Bitcoin,
fundamentally
altering
investment
patterns
within
the
crypto
ecosystem.

Han
underscores
the
core
argument
for
a
spot
ETH
ETF:
the
high
correlation
between

CME
ETH
futures
and
spot
prices.
This
correlation
was
a
key
factor
in
the
approval
of
spot
BTC
ETFs.

“The
correlation
between
the
CME
futures
product
and
the
spot
exchange
rates
is
sufficiently
high
such
that
CME’s
surveillance
can
be
reasonably
expected
to
detect
misconduct
in
the
spot
market,”
Han
states.
This
reasoning
is
expected
to
be
equally
applicable
to
Ethereum,
given
that
the
CME
ETH
futures
launched
just
a
month
before
the
correlation
study
period
used
for
BTC
ETF
approvals.

Despite
the
significant
market
potential,
the
report
highlights
the
differences
to
Bitcoin
and
recognizes
the
regulatory
uncertainties,
particularly
around
Ethereum’s
proof-of-stake
(PoS)
mechanism.
The
complexities
of
staking—such
as

slashing
conditions,
validator
differences,
and
unstaking
liquidity
risks—introduce
additional
layers
of
consideration
for
regulators.
“The
complexities
of
staking
present
unique
challenges,
but
these
should
not
impact
the
status
of
unstaked
ETH,”
Han
notes.

Market
sentiment,
as
reflected
in
trading
platforms
like
Polymarket,
currently
prices
the
odds
of
a
spot
ETH
ETF
approval
by
May
31,
2024,
at
16%.
However,
Coinbase’s
analysis
suggests
these
odds
are
significantly
higher,
closer
to
30-40%.
This
divergence
indicates
that
the
market
may
not
fully
appreciate
the
potential
regulatory
and
market
shifts
in
favor
of
Ethereum.

Han
also
points
out
that
even
if
the
initial

deadline
of
May
23,
2024,
encounters
a
rejection,
there
remains
a
high
likelihood
that
litigation
could
reverse
such
a
decision.
“Crypto
is
becoming
an
election
issue,
and
the
SEC
may
not
be
willing
to
expend
the
political
capital
necessary
to
support
a
denial,”
Han
argues,
suggesting
that
political
dynamics
could
also
play
a
role
in
the
regulatory
process.

The
approval
of
a
spot
ETH
ETF
would
not
only
align
Ethereum
with
Bitcoin
in
terms
of
regulatory
clarity
and
access
to
institutional
capital
but
also
disrupt
traditional
capital
flow
patterns
within
the
crypto
market.
Historically,
capital
has
rotated
from
Bitcoin
to
Ethereum
and
then
to
higher-beta
altcoins.
A
spot
ETH
ETF
would
potentially
streamline
this
flow,
directly
channeling
institutional
investments
into
Ethereum.

This
approval
would
also
mitigate
one
of
the
largest
overhangs
for
ETH,
especially
in
a
challenging
regulatory
environment.
“The
potential
approval
of
a
spot
ETH
ETF
removes
a
significant
barrier,
opening
up
ETH
to
new
capital
inflows
and
regulatory
clarity,”
Han
emphasizes.

Ethereum’s
Long-Term
Positioning

Beyond
the
immediate
implications
of
a
spot
ETF,
Coinbase’s
report
delves
into
Ethereum’s
strong
long-term
positioning.
Despite
facing
competition
from
other
layer-1
networks
like
Solana,
Ethereum’s
advantages—such
as
the
maturity
of
its
developer
ecosystem,
the
proliferation
of
its
EVM
platform,
and
its
role
as
DeFi
collateral—remain
unparalleled,
according
to
Han.

The
growth
of
Ethereum
layer-2
solutions
and
the
reduced
ETH
burn
post-EIP-1559
are
highlighted
as
factors
enhancing
its
value
proposition.
Additionally,
Ethereum’s
historical
trading
patterns
reveal
its
dual
role
as
both
a
store-of-value
and
a
technology-token,
adding
to
its
unique
market
positioning.

In
conclusion,
Coinbase’s
analysis
presents
a
compelling
case
for
the
near-term
approval
of
a
spot
ETH
ETF
in
the
US.
The
report
suggests
that
market
participants
may
be
underestimating
the
odds
and
timing
of
such
approval,
leaving
room
for
potential
upside
surprises.

“We
think
the
market
may
be
underestimating
the
timing
and
odds
of
a
potential
approval,
which
leaves
room
for
surprises
to
the
upside,”
Han
remarks.
Moreover,
he
predicts
that
ETH
may
“have
the
potential
to
surprise
to
the
upside
in
the
coming
months.
ETH
does
not
appear
to
have
major
sources
of
supply-side
overhangs
such
as
token
unlocks
or
miner
sell
pressure.”

At
press
time,
the
ETH
price
stood
at
$3,028.

Featured
image
created
with
DALL·E,
chart
from
TradingView.com