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In contrast to the pre-approval enthusiasm for the Spot Bitcoin ETF, reports over the past few weeks suggest that optimistic expectations for the Ethereum product's approval have cooled. Katherine Dowling, general counsel for ETF applicant company Bitwise, said in an interview with Bloomberg this week that she expects it to be rejected next week due to the lack of public activity typically seen before approval. .
Dowling noted that “most people universally expect an order of disapproval.” “We're not seeing the kind of public activity that we would see if there was approval.”
VanEck CEO Jan van Eck also predicted in an interview with CNBC that it was likely to be rejected. Next week, the SEC's decision will seal the fate of VanEck and Ark Invest's filings.
“We were also the first in the United States to file an Ethereum application, and we and Cathie Wood are kind of the first in the May application that will likely be rejected,” he said. said.
Unlike the frequent revisions that occur to identify Bitcoin ETF filings, there has been minimal interaction between fund companies and the SEC regarding Ether ETFs. Officials involved in negotiations with securities companies reported that they were prepared for a negative outcome.
The market was active in the last month leading up to the Spot Bitcoin ETF decision. While fund managers are in fierce fee competition, industry experts are making bullish bets.
Bloomberg ETF analysts James Seifert and Eric Balchunas expect the chance of spot approval for the Ethereum ETF to be just 25%. Seifert recently expressed skepticism about a positive outcome, saying the nod was “not happening.”
Why does the SEC decide to reject Spot Ethereum ETFs?
SEC Chairman Gary Gensler has not spoken out about the Ethereum ETF application. However, he clarified that the approval of the Spot Bitcoin ETF does not set a precedent for other crypto ETFs. Concerns about the classification of most cryptocurrencies as securities remains a major compliance hurdle.
Scott Johnson, general partner at Van Buren Capital, said the SEC would need to provide a clear and detailed explanation if it denies a spot Ethereum ETF application. One potential reason for rejection could be Ethereum's classification.
The apparent purpose is to potentially deny these spot applications on the basis that they were improperly filed as commodity-based trust shares and would not qualify if the securities were held.
— Scott Johnson (@SGJohnsson) May 14, 2024
The SEC has not clearly classified Ether, and its decision may depend on whether it considers Ether to be a security. If the SEC considers Ether to be a security, spot ETFs would not be allowed under current regulations.
The SEC’s alleged investigation into the Ethereum Foundation and its impact on Ethereum’s staking features hint at a possible regulatory direction.
SEC May Not Approve All Spot Ethereum ETF Applications at Once: Coinbase
Despite the uncertainty, Coinbase analyst David Hung believes there is a 30-40% chance of approval by the end of the month.
He believes the correlation between CME futures and spot exchange rates, which is critical to the approval of Bitcoin ETFs, could benefit Ethereum ETFs as well.
However, like Johnson, Han pointed out that the SEC may focus on Ethereum's PoS mechanism as a reason for the denial due to unclear regulations regarding staking. He suggested that a Spot Ethereum ETF that allows staking is unlikely to be approved.
ARK Invest and 21Shares recently amended the S-1 form of their proposed Spot Ethereum exchange-traded fund (ETF) to remove the staking element. The move is seen as an effort to align filings with SEC priorities.
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