Ethereum, the world's second largest cryptocurrency, is set to benefit from the launch of Spot ETFs. However, the market reaction may have been more subdued than what was observed with Bitcoin's ETF approvals.
Investors expect the U.S. Securities and Exchange Commission (SEC) to approve spot Ethereum ETFs in May. However, ETH's price action may be less dramatic compared to Bitcoin's moves ahead of ETF approvals.
According to JPMorgan, the Ethereum price has risen 20% since November 9, when BlackRock first acquired the iShares Ethereum Trust. This is down from the 55% rally that Bitcoin experienced after BlackRock first applied for a spot ETF for BTC.
“We think the Ethereum spot ETF is less ‘hyped’ than its Bitcoin counterpart, perhaps due to its lower market cap and lack of a ‘first mover advantage’ over Bitcoin,” said JPMorgan analyst Kenneth Worthington.
According to analysts, the lack of expected enthusiasm may be due to regulatory uncertainty regarding ETH's status as a security. According to Nico Cordeiro, chief investment officer of Strix Leviathan, Bitcoin's status as a commodity and a security was clear.
JPMorgan estimates there is “no greater than a 50% chance” of spot ETH ETF approval by May 23, the deadline for the SEC to approve or deny the Ark/21Shares application.
Owen Lau, an analyst at Oppenheimer, said there is a “high probability” that the Ethereum ETF will be approved and that it may already be factored into market expectations.
“I expect the excitement for the ETH ETF to be more subdued compared to Bitcoin,” Lau told CNBC.
“Given that ETH's market cap is only 32% of Bitcoin and 16% of crypto, the amount of new money coming in may be less compared to Bitcoin. “But still, this is another important milestone to increase adoption.”
Following Grayscale's court victory against the SEC last summer, the industry now has a roadmap to fall back on if the SEC rejects Ether ETFs.
Gustavo Schwenkler, an associate professor at Santa Clara University's Leavey School of Business, echoed this sentiment, citing another landmark case:
“Bitcoin was always clearly stated as a commodity, Cardano and Solana were always clearly securities, but ETH was always floated.”
As a matter of fact, last summer, a judge in the Southern District of New York ruled that Ripple's XRP token “is not a security on its face.”
Schwenkler believes any enthusiasm leading up to potential ETH ETF approvals will be “less speculative” and that much of it is already priced in. “Because we've already learned that lesson from Bitcoin, I think the reaction will probably be less extreme than what we've seen with Bitcoin,” he said.
*This is not investment advice.