The ongoing standoff between the crypto community and the U.S. Securities and Exchange Commission (SEC) has a long history with the latter facing allegations of being too harsh with the regulations.
The ongoing controversy of spot ETH ETF approval is a part of this long standing feud and it has again sparked buzz within the crypto ecosystem and overall finance sector. If approved, the Spot ETH ETF will be the second ‘spot cryptocurrency ETF’ ever created after Bitcoin.
But what are the chances of SEC approving at least one spot Ethereum ETF on May 23 or 24 when there is a deadline for the applications from ARK Investment and VanEck? Let’s discuss it and find out what impact either decision will have on Ethereum and the crypto market.
Are Spot Ethereum ETFs Going To Be Approved This Month?
The US Securities and Exchange Commission (SEC) is on the verge of delivering their decision on the approval of spot Ethereum ETF applications by this month. Majority of the crypto analysts within the industry are anticipating disapproval from the regulatory agency. This is due to a fact that it kept rescheduling the decision for several applicants who are seeking to offer the first spot ETH ETF.
However, the crypto space is full of surprises and as 80% of the people are expecting denial, the odd result also has the room. The potential approval currently only follows the fact that Bitcoin and Ethereum are much alike except Ethereum has shifted to proof-of-stake (PoS) consensus after the Merge upgrade in September 2022. Bitcoin on the other hand, is still functioning on proof-of-work (PoW) consensus. While SEC tends to lookout for every detail as aggressive, it may consider both blockchain and the native cryptocurrency different.
When Bitcoin ETFs were approved in January, most of the people in the crypto industry believed that ETH ETF would also follow. Although the SEC has now seemed to be handling ETH case separately. To add even more difficulties, the upcoming presidential elections could also play a vital role in this scenario and the decision on ETH ETF is likely to come in the favour of investors.
The enthusiasm towards potential approval also seems to be faded as the ETH market is reacting negatively in the past few days. Amid the ongoing price uptrend, ETH has failed to catch up the market while other leading crypto assets – such as BTC and SOL – have gained to new highs.
ETH: A Security or Commodity?
The SEC approved over a dozen spot Bitcoin ETFs earlier this year in January following a court order of reconsidering Grayscale’s application, which sought to convert its Bitcoin Trust into an ETF. Alongside Grayscale, all of the spot BTC ETF applicants argued why Bitcoin can not have spot ETFs while it already has several futures ETFs.
This similar case is now happening with the spot Ethereum ETF and many observers expect that the SEC will inevitably have to approve spot Ethereum ETFs in the similar way. However, the situation for Ethrereum is more complex than that of Bitcoin. The distribution of BTC is carried out majorly through the mining process while Ethereum has an ICO and it has a dynamic supply which could confuse the regulators.
Moreover, The SEC chair Gery Gensler has repeatedly said that Bitcoin was the only cryptocurrency they consider a commodity. He believes that Ethereum (ETH) and many other crypto assets are securities and it needs to follow the underlying regulations. Against this stance of the SEC, the Ethereum community led by Consensus – the developer entity behind MetaMask – has sued the regulatory agency. Consensus claims that ETH has no attributes of a security and the SEC is misusing their power in the case. Now its up to the trial which reveals if ETH is a security or not.
Impact of Spot ETH ETFs on Crypto Market
The potential approval of spot Ethereum ETFs could increase liquidity in the market and provide an efficient way of buying and selling ETH for traditional finance players. These ETFs also bring more attention towards the whole crypto industry as the market liquidity increases and it gives broader exposure.
One direct and major impact of spot ETH ETFs will be on the price of ETH which has long lost its credibility in the crypto ecosystem. The emergence of alternative layer blockchain networks have pushed Ethereum aside and reached new peaks. The existence of spot ETH ETH will surely drive all the traction back to Ethereum and straighten its position among other blockchain networks.
The massive inflows recorded in spot BTC ETFs also reflect exponential growth opportunities for ETH. According to SoSoValue, there is over $52 billion of value stored in spot BTC ETFs currently. Compared to Bitcoin’s market cap, this amount is minimal but it holds so much significance in the market. The potential approval of ETH ETF is expected to bring the same or even higher inflows from the traditional finance market. This will sharply give a boost to Ethereum ecosystem and the overall decentralized finance (DeFi) sector built upon it.
Besides, the Ethereum ecosystem has major upgrades lined up the next phase including the upcoming Pectra upgrade. As Ethereum matures with all these upgrades, it will attract massive attention from the traditional markets via spot ETFs.
The approval of spot ETH ETFs will surely revamp the crypto space with bringing major attention to the Ethereum ecosystem. Unlike BTC, ETH has an actual utility within the Ethereum ecosystem where most of the DeFi applications have taken place. The exposure ETH into traditional finance will certainly reshape the market dynamics and enhance its market price. This decision from the SEC is closely watched by millions of crypto users who are hoping for optimistic news amid the ongoing bullrun.
