Ether ETFs Approval Unlikely: Could Legal Battles Be Looming?

Investors hoping for a wave of Ethereum ETFs could be disappointed as industry analysts grow skeptical of an approval.

Gary Gensler shrugging his shoulders as Ethereum logos illuminate the sky behind him.
Created by Gabor Kovacs from DailyCoin
  • The SEC has most likely thrown up approval roadblocks for spot Ethereum ETFs.
  • Legal battles could erupt if applications are rejected, similar to Grayscale’s fight for a Bitcoin ETF.
  • Ethereum’s massive market size has made spot ETFs a lucrative prospect.

Investors hoping for a wave of spot Ethereum exchange-traded funds (ETFs) by May may be disappointed. Industry analysts are increasingly skeptical of the U.S. Securities and Exchange Commission (SEC) greenlighting these products in the coming weeks.

SEC Silence Raises Approval Concerns

The lack of engagement between the SEC and ETF issuers is a key concern. Unlike the lead-up to the approval of several Bitcoin ETFs in January, which saw a flurry of communication between regulators and applicants, there has been minimal interaction regarding Ethereum ETFs. 

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This “one-sided” approach, as reported by Barron’s, suggests the SEC may not be ready to move forward with spot Ethereum ETF approvals at this time. The silence from the SEC is raising red flags. Eric Balchunas, a senior ETF analyst at Bloomberg, uses the phrase “silence is violence” to describe the lack of feedback from the regulator. 

This lack of communication makes approval highly unlikely in the short term. Legal challenges could be on the horizon. If the SEC rejects a significant number of Ethereum ETF applications, a lawsuit may be forthcoming. 

Grayscale’s successful legal battle against the SEC in August 2023, where the regulator’s rejection of their Bitcoin ETF application was overturned, serves as a precedent. Industry experts like Nate Geraci, president of the ETF Store, believe Grayscale or another well-funded issuer could take similar action. 

The Race for Spot Ethereum ETFs

Such a lawsuit could be seen as a marketing opportunity, portraying the issuer as a champion of innovation in the cryptocurrency space. Despite the lackluster performance of existing futures-based Ethereum ETFs, the potential impact of spot ETFs remains significant. 

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The sheer size of the Ethereum market, with a current capitalization of $379 billion according to Geraci, makes it a force to be reckoned with in the eyes of investors and issuers alike. The success of Bitcoin ETFs demonstrates the demand for regulated investment vehicles in major cryptocurrencies, and Ethereum is no exception.

While the wait for spot Ethereum ETFs may continue for a bit longer, the underlying interest in the product remains strong. The coming months will be crucial in determining the SEC’s stance and the potential legal challenges that may arise.

On the Flipside

  • The lack of clarity from the SEC could be a tactic to encourage consolidation among ETF issuers. 
  • With multiple applications vying for approval, the SEC may be waiting for a smaller number of stronger applications before moving forward.

Why This Matters

A delay in approving spot Ethereum ETFs throws a wrench into investor plans and creates uncertainty in the market. This could stifle innovation and slow down the mainstream adoption of Ethereum, potentially impacting the entire crypto space as investors weigh regulated options versus unregulated markets.

While the Bitcoin halving has brought a temporary surge in fees, some analysts believe this could hinder Bitcoin adoption, find out why:
Bitcoin Fees Hit ATH Post Halving: Are Users Getting Priced Out?

Bitcoin ETFs are shaking up the cryptocurrency market, find out how:
Spot Bitcoin ETFs Attract Billions from Wall Street in Q1

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Kyle Calvert

Kyle Calvert is a cryptocurrency news reporter for DailyCoin, specializing in Ripple, stablecoins, as well as price and market analysis news. Before his current role, Kyle worked as a student researcher in the cryptocurrency industry, gaining an understanding of how digital currencies work, their potential uses, and their impact on the economy and society. He completed his Masters and Honors degrees in Blockchain Technology within Esports and Business and Event management within Esports at Staffordshire University.