Ethereum ETF Dreams Are Fading: The SEC’s Deafening Silence Speaks

According to Eric Balchunas, an ETF analyst at Bloomberg, the chances of approval of Ethereum (ETH) exchange-traded funds (ETFs) by May are very dim.

Speaking to Cointelegraph, Balchunas cited a number of factors contributing to this poor outlook, explaining that he has lowered the ETH ETF's authorization to just 35%.

TLDR

Bloomberg ETF analyst Eric Balchunas downgraded the chances of Ether ETF approval to 35% in May because of a lack of communication from the SEC to prospective funders. The SEC's silence, with just 73 days left before the deadline, is seen as a negative sign for ETH ETF approval. SEC Chairman Gary Gensler's stance on Ethereum as a security and his reluctance to face political fallout after approving the position of Bitcoin ETFs may contribute to their reduced chances of approval. For Ether, the ETF process feels like the “reverse” of the competition for the spot Bitcoin ETF, the feeling is growing with skepticism rather than energy. If the SEC rejects all pending Ethereum ETF applications, the next important date to watch is the US presidential election on November 5, as a change in leadership could affect the SEC's position on crypto ETFs.

One of the main factors that dampened Balchunas' optimism was the lack of communication from the United States Securities and Exchange Commission (SEC) to funders.

With the final deadline just 73 days away, SEC Radio's silence is seen as a worrisome sign. Balchunas emphasized that the approval process typically involves the SEC issuing comments and issuers working to correct them, which may require refills and meetings. The absence of such interaction at this stage is not encouraging.

Yes, our eth ETF odds dropped to 35% on the last day of May. I get all the reasons they should justify it (and we personally believe they should) but all the signs/sources that led us to shell out 2.5mo for btc spot are not there at this time. Note: 35% is not 0%, still…

— Eric Balchunas (@EricBalchunas) March 11, 2024

Balchunas also pointed to SEC Chairman Gary Gensler's stance on Ethereum as an obstacle. Gensler has previously expressed his belief that Ether is a safety net, which could lead to him not allowing ETH ETFs unless he changes his view and takes over commodities like Bitcoin. Additionally, Gensler may not be willing to face another round of political backlash similar to the one the SEC court faced in August 2023 over the approval of spot Bitcoin ETFs and Greyscale.

Balchunas told Ether that the ETF process feels like the “reverse” of the space's Bitcoin ETF competition. While the Bitcoin ETF competition is seeing increasing bullishness and positive developments, the process of the Ether ETF seems to be moving in the opposite direction, accumulating doubts and negative indicators.

While the odds of approval are slim, some industry experts are cautiously optimistic. Matt Korva, general counsel at Consensus, pointed out that the rejection of the ETH ETF could be a positive development in the long term, because the SEC would not have any arbitrary reason to fight with other coins.

However, the general sentiment among analysts and industry observers seems to be leaning towards skepticism.

Major investment banks such as JPMorgan and TD Cowen have predicted approval in May. Even crypto market maker GSR, which initially estimated a 70% chance of approval, has admitted that their hopes may be dampened if there is no visible progress next month.

If the SEC has completely rejected all pending Ethereum ETF applications, Balchunas has identified Tuesday, November 5, the US presidential election as the next critical date.

A change in leadership, be it a new president or a change in the SEC, can significantly affect the regulatory landscape of crypto ETFs.

Finally, Balchunas remains convinced that somewhere the Ether ETF will be more of a question of when, not if. He believes approval will happen eventually, but the timing is uncertain.

As more time passes, regulatory issues surrounding crypto ETFs may be resolved, paving the way for future approvals.