The U.S. Securities and Exchange Commission (SEC) recently approved spot Ethereum (ETH) exchange-traded funds (ETFs), a move that has sparked discussions about the underlying motivations. Analysts from Bernstein, a research and brokerage firm, have provided their analysis of the SEC’s decision-making process.
What Prompted the SEC’s Decision?
Initial theories suggested that political pressure from Democrats, eager to win over undecided voters before the November U.S. Presidential elections, influenced the SEC’s decision. However, Bernstein analysts argue that this theory became less credible after President Joe Biden vetoed the proposal to repeal the SEC’s Staff Accounting Bulletin No. 121.
Bernstein’s Gautam Chhugani and Mahika Sapra believe the SEC faced a difficult situation because of the similarities between Ethereum ETFs and spot Bitcoin ETFs. Both have correlations with spot and futures markets and active futures products on the Chicago Mercantile Exchange, which supports ETH’s status as a commodity.
Why Did Market Expectations Differ?
According to Bernstein, the SEC likely took a pragmatic approach to avoid potential lawsuits and legal battles. This suggests a nuanced decision-making process, not solely driven by political factors. Despite the unexpected approval, the decision holds significant implications for market participants, signaling a positive shift in the industry.
Applicants for spot Ethereum ETFs believed a rejection was more probable, especially given the SEC staff’s silence until the decision date. The SEC’s approval surprised many, particularly because issuers were asked to resubmit necessary documents just days before the approval, showing a sudden change in situation.
Key Takeaways for Market Participants
- The SEC’s approval of spot Ethereum ETFs indicates a positive regulatory stance towards cryptocurrency markets.
- Similarities between Bitcoin and Ethereum ETFs were a significant factor in the SEC’s decision.
- There might be pent-up demand for Ethereum ETFs, potentially affecting ETH prices ahead of the ETF launch.
- Approved ETF issuers like VanEck, BlackRock, and Fidelity are now in line to finalize their registration statements.
While inflows into spot Ethereum ETFs are expected to be lower than those for spot Bitcoin ETFs, Bernstein anticipates strong demand from market participants, which could lead to positive price movements for ETH as the ETF launch approaches.
The SEC’s formal approval on May 23 included applications from notable organizations like VanEck, BlackRock, and Fidelity. These ETF issuers are now in the process of finalizing their registration statements, which may take several weeks to months to complete.