Coinbase Research releases a detailed report authored by David Han highlighting that the likelihood and timing of U.S. spot Ethereum (ETH) exchange-traded fund (ETF) approval has been significantly underestimated by the market. . The potential approval of such an ETF would represent a significant change in Ethereum market dynamics.
Spot ETH ETF approval case
This report delves into the pivotal importance of spot ETH ETFs alongside the successful approval of spot BTC ETFs in the US. The introduction of the Spot Bitcoin ETF brought regulatory clarity, significant capital inflows, and strengthened Bitcoin's status as a macro asset. Similarly, a spot ETF would open up Ethereum to the same capital pool that currently backs Bitcoin, fundamentally changing investment patterns within the cryptocurrency ecosystem.
Han highlights the central argument for the Spot ETH ETF: that there is a 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 CME futures products and spot exchange rates is high enough that CME monitoring could reasonably be expected to detect fraudulent activity in the spot market,” Han said. Given that CME ETH futures were launched just one month before the correlation period used for BTC ETF approval, we expect this reasoning to apply to Ethereum as well.
Despite the market's huge potential, the report highlights the differences with Bitcoin and acknowledges regulatory uncertainties, particularly regarding Ethereum's proof-of-stake (PoS) mechanism. The complexities of staking, such as slash conditions, validator differences, and unstaking liquidity risks, require even more consideration from regulators. “The complexity of staking presents unique challenges, but these should not affect the status of unstaked ETH,” Han said.
Market sentiment as reflected on trading platforms like Polymarket currently factors in a 16% probability of approval for the Spot ETH ETF by May 31, 2024. However, according to Coinbase analysis, these probabilities are likely to be quite high, closer to 30-40%. This divergence indicates that the market may not fully understand the potential for regulatory and market changes that favor Ethereum.
Han also noted that even if the original deadline of May 23, 2024 is rejected, it is still likely that such a decision will be overturned through litigation. “Cryptocurrency is becoming an election issue, and the SEC may not want to spend the political capital necessary to support a rejection,” Han argued, adding that political dynamics could also influence the regulatory process. It was suggested that there is a sex.
Approval of the Spot ETH ETF not only aligns Ethereum and Bitcoin in terms of regulatory clarity and access to institutional capital, but also disrupts traditional capital flow patterns within the cryptocurrency market. . Historically, capital has moved from Bitcoin to Ethereum to high-beta altcoins. A spot ETH ETF could streamline this flow and drive institutional investors directly into Ethereum.
This approval also reduces one of the biggest overhangs for ETH, especially in a tough regulatory environment. “The potential approval of a spot ETH ETF removes a significant barrier and brings new capital inflows and regulatory transparency to ETH,” Han emphasizes.
Ethereum’s long-term position
Coinbase's report goes beyond the immediate impact of spot ETFs and delves into Ethereum's strong long-term positioning. According to Han, Ethereum's advantages, including the maturity of its developer ecosystem, the prevalence of the EVM platform, and its role as DeFi collateral, despite facing competition from other layer 1 networks like Solana. remains unparalleled.
The growth of Ethereum Layer 2 solutions and the decline in ETH burn since EIP-1559 are highlighted as factors that strengthen its value proposition. Additionally, Ethereum's historical trading patterns reveal its dual role as both a store of value and a technology token, enhancing its unique market position.
In conclusion, Coinbase's analysis makes a compelling case for near-term approval of spot ETH ETFs in the US. The report suggests that market participants may be underestimating the probability and timing of such approval, leaving room for potential upside.
“We believe the market may have underestimated the timing and probability of potential approval, leaving room for surprise upside,” Han said. Furthermore, he predicts that ETH “could see an unexpected rally in the coming months.” ETH does not appear to have any major sources of supply-side overhang, such as token unlocking or miner selling pressure. ”
At the time of writing, ETH price was $3,028.
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