With the hype and volatility brought about by the launch of the first spot Bitcoin (BTC) exchange-traded funds (ETFs) beginning to subside, the debate around the potential launch of the first spot Ethereum (ETH) ETFs is heating up, and it looks to be as contentious as the BTC ETF debate was.
According to Geoffrey Kendrick, head of Standard Chartered Bank's forex and digital assets research, those expecting multiple extended delays may miss out on the price appreciation that will occur as he expects the first spot ETH ETF to be approved within the next four months.
"We expect pending applications for ETH U.S. spot ETFs to be approved on May 23, the final deadline for the first of the ETFs under consideration – the equivalent date to Jan. 10 for BTC ETFs," Kendrick said in a report on Tuesday. "If ETH prices perform similarly to how BTC prices performed in the lead-up to BTC ETF approval, ETH could trade as high as $4,000 by then."
May 23 is the final deadline for the applications submitted by VanEck and Ark/21Shares.
Kendrick said the main reason for his bullish prediction is the fact that the SEC has avoided labeling Ether as a security in its legal actions against crypto companies, while the regulator has already approved the listing of Ether futures contracts on the Chicago Mercantile Exchange (CME), which adds weight to this expectation.
“Grayscale also has an ETH trust that it wants to turn into an ETF, so a denial of that application would likely lead to another appeal by Grayscale," he said. “We see no fundamental reason for the SEC to view ETH differently than the CME already does.”
The report also predicted that Ether would face less selling pressure after a potential ETF approval than BTC has thus far because the Grayscale Ethereum Fund (ETHE) has a smaller market share of Ether market capitalization than the Grayscale Bitcoin Fund (GBTC), which has been the primary source of selling over the past two weeks.
Long term, Kendrick said Ether has the potential to reach $8,000 by the end of 2026, which would mark “a stepping stone” to the bank’s “structural” valuation estimate of $26,000-$35,000.
“The approval of a spot Bitcoin ETF could positively influence the SEC's stance on a spot Ethereum ETF,” said Jag Kooner, head of derivatives at Bitfinex, in a note to Kitco Crypto. “In fact, Ethereum ETFs launched within weeks of the first Bitcoin ETF in other parts of the world. Regulators in Canada were comfortable with the product because there is a regulated futures market for ETH, allowing market makers to hedge risk while creating and redeeming units.”
“SEC chairman Gary Gensler has often argued that all cryptocurrencies except Bitcoin are securities. However, according to Bloomberg analyst James Seyffart, ‘the SEC has pretty much implicitly accepted Ethereum as a commodity,’” he said. “Additionally, Ethereum futures-based ETFs are already rolling. From this, we can assume that in time, spot Bitcoin ETFs could be followed by ETH-based ones.”
Kooner suggested that the entry of major financial players like BlackRock into the Bitcoin ETF market “was seen as a positive sign for the overall acceptance of crypto ETFs,” which could “imply a similar effect for Ethereum ETFs, as institutional interest tends to validate the market in the eyes of regulators.”
“The major factor at play could be the categorization of Ether either as a security or commodity,” he said, adding that “the initial application from Grayscale to convert its Ethereum trust to an ETF and the one from Blackrock has received an SEC pushback.”
“The general trend has been positive for spot Bitcoin ETFs,” Kooner said. “A major factor has been GBTC and their existing surplus of $25 billion invested in their trust prior to the conversion, the same would be true for Ethereum.”
That said, he warned that crypto assets that unlike Bitcoin “have not stood the test of time and established the reputation of ‘digital gold’ or a commodity as the largest crypto asset by market capitalization” could face headwinds in achieving adoption in the TradFi world. “An example could be the lackluster performance on the launch of futures Ethereum ETFs in comparison to futures-based Bitcoin ETFs,” he said.
While Standard Chartered sees an ETH ETF approval within months, analysts at TD Cowen think that such an approval is at least 18 months away.
"We do not expect the SEC in 2024 to approve a spot Ethereum ETF," TD Cowen Washington Research Group, led by Jaret Seiberg, wrote in a note on Monday. "This is a political call. We believe there is no upside for SEC Chair Gary Gensler to approve a spot Ethereum ETF given how upset progressive Democrats were over the agency's approval of a spot bitcoin ETF earlier this month."
The analysts said that Gensler would need the support of progressive lawmakers to advance his agenda during the election year ahead, and would also need their support if he transferred to a different role, such as Treasury secretary.
So “there is no reason to provoke a needless fight,” TD Cowen said. “We say needless, as our view remains that Gensler is in no hurry to approve an Ethereum ETF as he would first like more experience with the performance of the recently approved spot Bitcoin ETFs. This is consistent with his broader approach to crypto, which is to move incrementally and slowly when it comes to providing regulatory approvals or clarity.”
The investment bank noted that while the ruling in Grayscale’s lawsuit against the SEC forced the regulator's hand when it came to approving a spot BTC ETF, no such pressure exists when it comes to an Ether ETF, so they can take their time in making a decision.
“[The SEC] can eventually reject the rule change, which either will lead to a new application or litigation,” the bank said. “Either will take another year or two to play out.” They added that the expected late 2025 or early 2026 approval deadline is possible even if Congress fails to enact broader crypto market structure legislation in 2025.
Falling in the middle of these two predictions are analysts at JPMorgan, led by Nikolaos Panigirtzoglou, who recently said the chance of approval in May is a coin flip.
“We are skeptical that the SEC will classify Ether as a commodity as soon as May,” the analysts said in a note to clients on Jan. 18, adding that the chances of approval of a spot Ether ETF by May this year are “not higher than 50%.”
They noted that the ability to stake Ether to earn a reward has complicated the situation and makes the token notably different than Bitcoin, and more likely to be considered a security.
“The ongoing lawsuits by the SEC against crypto exchanges offering staking services for proof-of-stake blockchains, including Ethereum, make a spot Ether ETF approval more challenging at least until these lawsuits are resolved,” the report said.
Bloomberg Intelligence senior ETF analyst Eric Balchunas previously said he expects a 70% chance of an Ethereum spot ETF being approved in May. His colleague, James Seyffart, said they are a little more reserved in their estimate at this point, giving the odds of approval a 60% chance.
“I will just say there are two very clear bear and bull cases for Ethereum ETF approval odds. We believe the odds of approval are over 50% but not nearly as confident as we were about the Bitcoin ETFs. I would say our odds are probably around 60-65%," Seyffart told The Block.
Despite these warnings, crypto traders continue to accumulate ETH in the same way they accumulated BTC as the spot Bitcoin ETF hype started to build, so there is a good chance that Ether's price will rise heading into May.
After the prediction of approval by Standard Chartered was widely reported, Ether’s price spiked 3.2% but has since given back those gains. At the time of writing, ETH trades at $2,305.
ETH/USD Chart by TradingView