The chances of approval for the pending spot Ethereum exchange-traded fund (ETF) applications this May are strained as two US Senators urged the Securities and Exchange Commission (SEC) to reject other crypto ETF proposals. Senators Jack Reed and Laphonza Butler advised the financial regulator to tighten its scrutiny of Bitcoin ETFs. They raised concerns about approving additional crypto ETFs beyond Bitcoin, citing potential risks for retail investors.
The lawmakers expressed doubts about the integrity and trading volumes of other cryptocurrencies, such as Ethereum, to support related ETPs. They argued that the futures markets for these cryptocurrencies may not closely correlate with spot markets, making it challenging to conduct effective market surveillance and prevent fraudulent activities. They emphasized the need for the SEC to protect retail investors from thinly traded cryptocurrencies or those susceptible to pump-and-dump schemes.
Bloomberg analysts lowered the probability of a spot Ethereum ETF approval to 35%, contributing to the current pessimism surrounding the approval of such ETFs. Eric Balchunas, Bloomberg’s Senior ETF Analyst, suggested that the success of Bitcoin ETFs might have unsettled some politicians, leading to doubts about approving spot ETH ETFs. This uncertainty has cast a shadow over the potential approval of Ethereum ETF applications.
Paul Grewal, the legal chief at Coinbase, highlighted the potential for significant legal conflicts if the SEC decides to decline the pending Ethereum ETF applications. Grewal emphasized that Ethereum and other digital assets boast market quality metrics surpassing even the most substantial traded equities. He argued that ETH’s future and spot market exhibit high and consistent correlation, enabling effective market surveillance. Therefore, Grewal suggested that the SEC’s refusal of an Ethereum ETF application would be based on flawed reasoning given Ethereum’s robust market performance.
The approval of a spot Ethereum ETF hangs in the balance as regulatory scrutiny, market integrity, and legal conflicts create obstacles for such applications. While some Senators express concerns about the risks associated with approving non-Bitcoin crypto ETFs, others highlight the market quality metrics of digital assets like Ethereum. The decision ultimately rests with the SEC, which must carefully consider all factors before granting approval for Ethereum ETFs.
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