According to Coinbase’s analyst, the SEC might reject spot Ethereum funds that allow staking in the near team.
In contrast to the enthusiasm that preceded the approval of spot Bitcoin ETFs, reports over the past few weeks suggest that optimistic expectations for the Ethereum product’s approval have cooled down. Speaking with Bloomberg this week, Katherine Dowling, general counsel for ETF applicant Bitwise, said she anticipates rejection next week due to the lack of public activity typically seen before approval.
The obvious purpose is to potentially deny on the basis that these spot filings are improperly filed as commodity-based trust shares and do not qualify if they are holding a security.
— Scott Johnsson (@SGJohnsson) May 14, 2024
The SEC has not definitively classified Ether, and its decision might hinge on whether it considers Ether a security. If the SEC views Ether as a security, then spot ETFs wouldn’t be allowed under current regulations.
The SEC’s alleged investigations into the Ethereum Foundation and the implications of Ethereum’s staking feature suggest a possible regulatory direction.
The SEC might not approve all spot Ethereum ETF applications at once: Coinbase
Despite the uncertainty, Coinbase’s analyst David Han sees a 30% to 40% chance of approval by month’s end.
He believes the correlation between CME futures and spot exchange rates, which was pivotal for Bitcoin ETF approvals, could similarly benefit Ethereum ETFs.
However, like Johnsson, Han noted that the SEC might focus on Ethereum’s PoS mechanism as a reason for denial since regulations around staking are unclear. He suggested spot Ethereum ETFs enabling staking are unlikely to be approved.
ARK Invest and 21Shares recently amended their S-1 form for the proposed spot Ethereum exchange-traded fund (ETF) by removing the staking component. The move is considered an effort to align the filing with SEC preferences.