The US Securities and Exchange Commission (SEC) is expected to reject the applications on May 23, which will determine the fate of Ethereum spot ETFs. The lack of significant interaction with potential issuers and Ethereum's unclear regulatory status led analysts to predict a negative outcome.
Following the removal of the staking feature in Ark Invest's application yesterday, the probability of approval of ETH Spot ETFs suddenly rose above 50% in some prediction markets.
The SEC's recent investigation into the Ethereum Foundation further complicates matters. As a result, Bloomberg Intelligence ETF analyst Eric Balchunas suggests that spot Ethereum ETFs may not be approved until the end of 2025.
When faced with rejection, potential ETF issuers like BlackRock, Fidelity or Ark Invest have two options: follow Grayscale's example and sue the SEC or re-apply at a later date.
The upcoming US elections could significantly impact the future of Ethereum ETFs. If former President Donald Trump wins a second term, there could be a leadership change at the SEC. A new president could adopt a more cryptocurrency-friendly stance than current president Gary Gensler.
“If there is a new president, you reapply. Maybe you get approval. Or you file a lawsuit. Either way, it will take another year for this to be finalized,” Balchunas said. said.
In 2022, Grayscale filed a lawsuit against the SEC after years of rejections of Bitcoin spot ETF applications. A judge ruled in September that the SEC acted arbitrarily and capriciously in rejecting applications. Four months later, Bitcoin ETFs were launched.
However, this strategy is unlikely to be repeated for Ethereum ETFs. Balchunas suggested that Grayscale, which experienced significant outflows when its Bitcoin trust was converted into an ETF, may not aggressively pursue the conversion of its Ethereum trust.
Other potential issuers are unlikely to follow Grayscale's lead and sue the regulator. “None of these other firms want to anger the SEC. Grayscale was unique in that it wasn't a major ETF issuer. The rest of these firms have other businesses and are more afraid. No one else will step in,” Balchunas said.
The US presidential elections in November could potentially solve this problem. With Trump leading in some polls, the likelihood of a new SEC chairman being appointed is higher than previously anticipated.
“Trump isn't necessarily pro-crypto. Remember the previous SEC chairman, Jay Clayton, didn't allow ETFs either. So he's not going to say 'let's go crazy.' But it's still probably going to be better for crypto and spot ETFs,” Balchunas said.
Assuming a new president will be appointed in April or May and applications will be submitted soon after, the deadline for approval or rejection could be around December 2025. Issuers may also try to file as soon as the election is over, or even before the results are announced, to speed up the process.
If Joe Biden wins the election, Balchunas predicts a cooling off period similar to past periods when spot Bitcoin ETFs were rejected. “My guess is that issuers will go through the summer, lick their wounds, be upset, and then see what happens with the election,” Balchunas said.
*This is not investment advice.