May 23, 2024 is a key date for Ethereum (ETH) investors across the world. On this day, the U.S. Securities and Exchanges Commission (SEC) will announce its verdict on VanEck’s spot ETH exchange traded funds (ETF) application.
A denial of VanEck’s spot ETH ETF application will likely mean that similar applications from Ark Investment, Grayscale, Franklin Templeton, Invesco Galaxy, and BlackRock will also be rejected later in the year.
An approval from the SEC will likely spark a rally in ETH prices — similar to the ETF-supported Bitcoin (BTC) bull run we saw earlier in 2024.
Key Takeaways
- VanEck is the first of many spot ETH ETF applicants.
- The legal status of ETH as a commodity or security continues to be a hot topic of debate.
- Bitcoin maxi Michael Saylor says altcoins will never get spot ETFs and commodity status.
- Anndy Lian says ETF rejection could lead to short-term ETH price volatility and decrease in price.
- Markus Thielen is comfortable holding a short position in ETH.
Pessimism Lingers over SEC Approval for Spot Ethereum ETF
The current mood regarding the launch of spot ETH ETFs in the U.S. is largely pessimistic.
The meeting between the SEC and spot ETH ETF applicants has been “one-sided” so far, insiders told Reuters. According to those who participated in the discussions, the SEC has not discussed “substantive details about the proposed products” nor asked issuers about concerns like they generally do when ETF applications are filed.
Crypto market observers will know that dealing with crypto skeptic SEC chair Gary Gensler is never a straightforward task. Even the recently approved spot BTC ETFs had to endure rejections of over 20 applications from the SEC between 2018 and 2023.
Given the fact that VanEck’s spot ETH ETF application is the first of its kind, CEO Jan van Eck expressed his pessimism at the Paris Blockchain Week crypto event, saying:
“We were the first to file as well for Ethereum in the U.S., and we and Cathy Wood (CEO of Ark Invest), are kind of the first in line for May, I guess, to probably be rejected.”
The Legal Status of ETH Hinders ETF Hopes
Additionally, the legal status of ETH continues to be a hot topic of debate. Despite the initial ETF denials, bitcoin never faced questions on its status as a commodity.
Anndy Lian, a governmental blockchain advisor and expert, told Techopedia:
“BTC has been generally recognized as a commodity by various regulatory bodies, including the CFTC. However, the SEC has not provided a clear stance on ETH’s classification, and recent comments by SEC Chair Gary Gensler have not explicitly categorized ETH as a commodity, which adds to the uncertainty.”
Adding to the fear, uncertainty and doubt was Bitcoin maximalist and co-founder of MicroStrategy, Michael Saylor, who said that it will soon be “very clear” that Ethereum is deemed a security not a commodity when the spot ETH ETF gets rejected in May 2024.
“After that you are going to see that Ethereum, BNB, Solana, Ripple, Cardano – everything down the stack – is just a crypto asset security unregistered. None of them will ever be wrapped by a spot ETF,” Saylor added.
“Wen Spot ETH ETF?”
While the growing consensus suggests that VanEck’s application will get rejected on May 23, 2024, industry insiders believe that a spot ETH ETF will eventually be approved later.
We look at the long road to the approval of spot BTC ETF as our reference.
Before its approval in January 2024, the SEC rejected every application placed before it. It was only when crypto fund manager Grayscale won a lawsuit against the SEC that spot BTC ETFs were finally approved in the U.S.
In their petition, Grayscale had argued that the regulation and surveillance that BTC futures ETF traded under were proof that spot BTC ETFs can be traded without fraud and manipulation.
Now market experts believe that the spot ETH ETFs will have to go down the same route to gain SEC approval — litigation.
“The template is likely to be similar to Bitcoin: with futures-based Ethereum ETFs already approved, the SEC (if it denies the approval of spot Ethereum ETFs) is likely to face a legal challenge and eventually lose,” said JPMorgan analysts in a report, as reported by The Block.
What Next for ETH?
Short-term Price Volatility
The market had hoped that positive developments on the spot ETH ETF front would be a major catalyst for ETH prices in 2024.
But now, dashed hopes of ETH ETF approvals coming as early as May 2024 has resulted in bearish ETH price movement (-24%) over the last two months, as of May 10, 2024.
With ETH continuing to underperform large-cap peers such as BTC, Solana (SOL) and BNB in 2024, the second-largest cryptocurrency will have to look for other market catalysts as it plays catch up.
“A rejection could lead to short-term price volatility and possibly a decrease in price as the market adjusts to the news,” Lian told Techopedia.
Lian added:
“Even if the SEC rejects the spot ETH ETF, Ethereum may not run out of market catalysts. Other potential catalysts for a bull run could include technological advancements, increased adoption, further integration into DeFi, RWA, and the broader crypto market dynamics.”
ETH is the ‘Basket Case of 2024’
Elsewhere, Markus Thielen, founder of 10x Research, called Ethereum the “basket case” of this crypto cycle.
Thielen wrote in an email note to investors that this research firm was “very bullish” on Ethereum earlier in the year, but their view turned bearish when they noticed a sharp decline in Ethereum gas fees that “signaled (near) zero demand for transactions with ETH.”
Thielen also added falling staking yield (2.9% on Lido at the time of writing) and higher on-chain Treasury yields (5.1%) will result in less demand for ETH as “more people realize this.”
“Right now, we would be more comfortable holding a short position in ETH than a long one in BTC as Ethereum’s fundamentals are fragile, which is not yet reflected in ETH prices,” said Thielen.
The Bottom Line
The U.S. SEC under Chair Gensler is known for its hardball approach towards the crypto industry. The securities watchdog has filed multiple lawsuits against prominent crypto companies and personalities including CZ, Binance, Coinbase, Kraken, and Uniswap, over the past year.
Just like Grayscale’s lawsuit, which paved the way for spot BTC ETFs in the US, maybe only a mirrored approach can get spot ETH ETFs across the finish line in 2024.
Source: https://www.techopedia.com/ethereum-etf-decision
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
