SEC Halts Ethereum Spot ETFs, Dampening Market Hopes

The Securities and Exchange Commission (SEC) is likely to reject several applications for Ethereum spot exchange-traded funds (ETFs) in May due to concerns about the cryptocurrency's underlying market, despite previous optimism in the industry. The SEC's hesitance reflects its ongoing skepticism toward the crypto sector, evidenced by its rigorous examination of earlier Bitcoin ETFs. However, despite potential setbacks, some experts remain optimistic about the long-term prospects of Ethereum ETFs, highlighting the potential bullish effects of an approved ETF and drawing parallels to previous market cycles.

SEC Expected to Reject Ethereum Spot ETFs, Dampening Market Expectations

According to a report published by Reuters on April 24, 2024, the United States Securities and Exchange Commission (SEC) is expected to deny several applications for Ethereum spot exchange-traded funds (ETFs) in May. This decision aligns with recent interactions between the agency and applicants, indicating a skeptical stance towards the cryptocurrency sector under the leadership of Chairman Gary Gensler.

Several applicants, including prominent firms such as VanEck and ARK Investment Management, anticipate rejections due to issues raised by the SEC regarding the nature and depth of statistics pertaining to Ether's underlying market. The decision deadline for VanEck's and ARK's applications is set for May 23 and May 24, respectively.

Issuers have cited the SEC's approval of Bitcoin spot ETFs as an example, arguing that the agency should adopt a consistent approach. However, the SEC's rigorous examination of these earlier products contrasts sharply with its current stance on Ethereum ETFs, reflecting ongoing concerns about potential market manipulation and the maturity of underlying market mechanisms.

Standard Chartered, a global financial institution, recently concurred with the expectation that the SEC will not approve Ethereum ETFs in May, as previously anticipated.

Despite potential setbacks, some industry experts remain optimistic. Jupiter Zheng, of the HashKey Capital investment firm, suggests that even if Ethereum ETFs are rejected, it may be a temporary obstacle rather than an insurmountable roadblock. Zheng expressed faith in the potential positive effects of an approved ETF, particularly one that incorporates staking, which could trigger a wave of short liquidations and further boost Ethereum's price.

Crypto analysts have adjusted their forecasts in light of the SEC's expected stance. Bloomberg's Eric Balchunas now estimates a 35% chance of approval, mirroring the broader skepticism among financial analysts and highlighting the SEC's continued reluctance to wholeheartedly embrace the cryptocurrency sector.

Despite potential rejections, the pursuit of Ethereum spot ETFs is likely to continue. Issuers are preparing additional disclosures in hopes of prolonging discussions with the SEC.

The anticipated denial of Ethereum ETFs has already impacted the cryptocurrency's market performance. Ethereum is lagging behind Bitcoin's yearly gains, with its price falling by 5.6% in the last 24 hours and currently trading at $3,086.