Coinbase’s Analysis of SEC Approval Odds for Spot Ethereum ETFs
Crypto exchange Coinbase recently released a report indicating that the chances of the SEC approving spot Ethereum ETFs by the end of the month are estimated to be around 30% to 40%. The report, published on May 15, by Coinbase Institutional Research Analyst David Han, highlighted parallels between the approval of spot Bitcoin ETFs and the potential approval of spot Ethereum ETFs.
The Case for Approval
Han pointed out that the correlation between CME futures products and spot exchange rates played a critical role in the SEC’s decision to greenlight spot Bitcoin ETFs. This correlation, Han suggested, could lead to a similar outcome for spot Ethereum ETFs. He went on to mention that there is a possibility of positive surprises in the decision-making process, as indicated by prediction markets and the fact that Grayscale Ethereum Trust is trading at a 24% discount.
Despite the positive outlook, Han acknowledged that the SEC’s lack of explicit communication has created uncertainty in the market. Additionally, he noted that spot Ethereum ETFs focused on engaging in ETH staking may face challenges in gaining regulatory approval.
Political Considerations
Coinbase’s optimism regarding SEC approval is partly based on the intersection of cryptocurrency and US politics. Han suggested that denying spot ETH ETFs could potentially be a politically risky move for the SEC, especially given the current political climate. The comments made by Bankless founder Ryan Sean Adams further underscored this sentiment, highlighting the potential electoral implications for Democrats.
While specific political developments were not outlined, recent surveys have indicated a preference for former President Trump among crypto owners over President Biden. This alignment with Republican interests has been portrayed as a contrasting stance against the regulatory approach of the Biden administration.
Potential Delay and Legal Implications
Notably, Han emphasized that the SEC is not obligated to approve all spot ETF applications simultaneously. Each application has its own decision deadline, with VanEck’s application slated for May 23, and BlackRock and Fidelity’s applications potentially pending until August. Han speculated that a rejection in May could lead to legal challenges and subsequent reversals in the decision-making process.
Looking back at previous decisions, SEC Chair Gary Gensler’s reference to a lawsuit from Grayscale concerning GBTC conversion influenced the approval of spot Bitcoin ETFs earlier this year. However, no indication has been given by Grayscale regarding potential legal actions related to spot Ethereum ETFs.
Expert Opinions and Market Predictions
Reaction to Coinbase’s optimistic stance on SEC approval varied among industry analysts. Bloomberg analyst Eric Balchunas characterized Coinbase’s position as a bold move to raise their profile with minimal downside risk. Balchunas contrasted this with his own and his colleagues’ more cautious estimates, which he described as riskier in terms of reputation.
Balchunas’ projections on spot ETH ETF approval odds have shifted from skeptical to pessimistic over time. Polymarket, a crowdsourced prediction platform, also reflected diminished approval odds for spot Ethereum ETFs. At present, the odds stand at a mere 10%, indicating a downward trend from earlier assessments.
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