The first step is always the hardest.
After years of repeated rejections, the Securities and Exchange Commission has finally approved its first spot Bitcoin ETFs—a seismic development that analysts say amounts to formally integrating Bitcoin with the global economy.
It’s a historic achievement—one that finally provides a way for Wall Street retail investors to gain direct exposure to Bitcoin without the need to fuss with cryptocurrency exchanges or wallets. And it might not just be good for Bitcoin.
Experts now believe the SEC’s acquiescence could have opened the door to the approval of other crypto-backed spot ETFs, namely a spot Ethereum ETF. And thanks to the precedent set by a Bitcoin ETF, that financial product could enter the market in a matter of months, not years.
Eric Balchunas, a senior ETF analyst at Bloomberg, says he is 70% confident that a spot ETH ETF will be approved by May.
How could that be, when it took Bitcoin years to accomplish the same feat? Further, hasn’t the SEC repeatedly signaled that it is far more skeptical of Ethereum than of Bitcoin?
During an appearance on Rug Radio’s FOMO Hour late last week, Balchunas said it all comes down to legal strategy. After the SEC approved a Bitcoin futures ETF in 2021, Grayscale sued the federal regulator, arguing it couldn’t arbitrarily approve a BTC futures ETF and reject a spot BTC ETF at the same time.
Futures ETFs track the price of derivatives contracts, which themselves grant the buyer the ability to buy or sell Bitcoin at a later date. No Bitcoin is actually bought and sold when futures ETFs are bought and sold. Spot ETFs are different, and their issuers—BlackRock, Fidelity, Grayscale, and many more—do actually buy and store Bitcoin on behalf of their clients.
When it comes to how they should be treated by the SEC, Grayscale argued in court that it shouldn’t make a difference—and won. Shortly thereafter, backed into a corner, the SEC changed its tune on spot Bitcoin ETFs.
The SEC now appears to be in a similar situation with Ethereum, Balchunas believes, given that the agency approved its first Ethereum futures ETFs in October.
“Ipso facto, you have to approve an Ether spot [ETF], or you’re going to get sued again for the same exact reason,” the analyst explained during a Rug Radio appearance late last week.
Other analysts share that optimism. In a report released earlier this week, British multinational bank Standard Chartered predicted that a spot Ethereum ETF is likely to gain approval by Q2 of this year.
James Butterfill, head of research at digital asset investment firm CoinShares, concurs.
“Given that the SEC has treated both BTC and ETH in a very similar way, it is highly likely [that approval comes] Q2 this year,” he told Decrypt.
Bolstering that confidence is the stature of the applicants who’ve already lined up to list a spot ETH ETF. In November, Wall Street behemoth BlackRock threw its weight behind a spot ETH ETF application; the asset manager’s entrance to the spot Bitcoin ETF race last summer was widely considered a major boon for the financial product’s prospects.
“These are not… minor companies,” Adam Berker, senior legal counsel at global payments platform Mercuryo, told Decrypt. “These requests originate from high-profile entities like BlackRock and Grayscale, both of which have considerable influence and a robust operational history.”
Others still in the crypto industry, however, feel that a spot Ethereum ETF isn't quite said and done—yet. William Quigley, co-founder of stablecoin Tether, believes the inescapable differences between smart contract-less Bitcoin, and the complex, multilayer Ethereum ecosystem could easily have an impact on proceedings.
“Timing for an Ethereum ETF is hard to predict since it is a more complex technology platform than the Bitcoin blockchain, and therefore presents more potential risks from the SEC’s perspective,” Quigley told Decrypt.
That vast technical contrast between Bitcoin and Ethereum cuts both ways, though. Whenever a spot Ethereum ETF is eventually approved, Quigley believes, the product will prove immensely attractive to Wall Street investors eager to get a piece of the vast and incredibly active Ethereum ecosystem.
“If Bitcoin is a lemonade stand, then Ethereum is a money center bank,” said Quigley. “Ethereum is more complex, has far more activity from its tens of thousands of active smart contracts and the layer 2 blockchains using it—and [Ethereum-based] tokens dominate the token trading ecosystem,” he said.
What does that mean for Wall Street’s appetite for an Ethereum ETF? “It's easy to see that institutional demand will be strong,” Quigley said.