Ethereum ETF Approval: Here's What You Need to Know About Today's Deadline

Approval odds have shifted to 75% from 25% just last week.

By: Mehab Qureshi Loading...

Ethereum ETF Approval: Here's What You Need to Know About Today's Deadline

There’s one question that’s front and center in the crypto industry today: Will the spot Ethereum ETFs be approved?

Today, May 23, is a key date for the spot Ethereum Exchange Traded Fund (ETF) approval process as the U.S. Securities and Exchange Commission (SEC) is set to decide on VanEck’s spot Ethereum ETF application, the first among several similar applications.

The expectation is that if the U.S. securities regulator approves the VanEck product, it will approve the other petitions. It may even approve them all at the same time, as the agency did with the Bitcoin products.

Investors expect spot Ethereum ETFs will open the floodgates to billions of dollars in inflows from institutional investors, which has driven the ETH price to rally over 27% in the past week, ahead of the decision.

However, even if approved, that doesn't mean Ethereum ETFs will start trading immediately.

According to Bloomberg Intelligence analyst James Seyffart, “there are broad misconceptions that ‘approvals’ mean immediate launches of the Ethereum ETFs. This isn’t necessarily the case. There will be days (at a minimum), likely at least weeks, and potentially months between approval and launches here.”

ETF Approval Steps

Before Ethereum ETFs start trading the SEC has to approve two forms filed by applicants, 19b-4 and S-1.

The S-1 form is a registration statement used by companies to provide information about their financial condition, risk factors, and business operations, before going public. In contrast, Form 19b-4 is specifically designed for the approval of rule changes by self-regulatory organizations (SROs) like stock exchanges.

“When it comes to ETFs, 19b-4 form is used to propose and detail the specific structure, mechanics, and operational guidelines of the ETF, directly impacting whether the SEC will approve the product for trading on an exchange,” said Asset Insight Partners lead analyst James Fabien. “While the S-1 is indeed crucial for transparency and investor protection, it often serves as more of a compliance formality.”

Without an approved Form 19b-4, the ETF can't launch, regardless of the information provided in the S-1.

The SEC only decides on Form 19b-4 today, while the S-1 form may take additional time.If both forms are approved, the ETF applicants can proceed with its offering and listing process.

ETH ETF Trading Timing

Even with SEC approval, it could take weeks or months before an ETH ETF launches due to further regulatory steps.

Crypto and ETF analyst Michael Van de Poppe, CEO of MN Trading suggested a more extended timeframe for Ethereum ETFs. He said, "It's more likely to expect 2-3 months for the approval of the Ethereum ETF to take place.”

Until last week, Bloomberg Intelligence analysts estimated a 25% chance of approval for an Ethereum ETF. This week, however, they increased the odds to 75%

Van de Poppe told The Defiant, “The odds for an approval have increased, however, the likelihood of an approval within a window of 24 hours sounds weird and almost impossible to establish.”

Reasons Behind Higher Odds

Several factors contributed to the higher odds of Ethereum ETF approval. One notable reason, according to analysts, was former President Donald Trump’s endorsement of crypto as part of his political campaign. Also, two key crypto bills, H.J. Res. 109 and the Financial Innovation and Technology for the 21st Century Act (FIT21) have garnered bipartisan support, signaling a shift in legislative attitudes towards cryptocurrency.

Jake Chervinsky, Chief Legal Officer, Variant Fund believes that the approval could be influenced by politics, and "crypto has been winning the political battle for months." Chervinsky speculated that "Biden camp saw how many voters Trump could win with one pro-crypto comment and decided to pivot."

Daniel Enright, Ecosystem Lead at LightLink, also cited Ethereum ETF approval odds to increase under political pressures. “If it is now a political and election issue, a tremendous amount of pressure will be asserted to pass this approval.”

Looking ahead, Van de Poppe believes that the upcoming months could serve as a preparatory period. “Following these delays, the summer could be a period of build-up towards the approval of the Ethereum ETF."

In terms of approval probabilities, he added, "I estimate a 70-80% chance for approval within 2-3 months, and roughly a 10-20% chance within the next few days."

Removing Final Hurdles

In the past few days, ETF applicants have been revising their applications, making changes that could potentially create obstacles for the product’s approval . One major change is the removal of staking ETH services.

On Wednesday, Nasdaq submitted an updated 19b-4 form for BlackRock's iShares Spot Ethereum ETF, just a day after CBOE submitted amended forms for ETFs proposed by Franklin Templeton, Fidelity, VanEck, and Invesco Galaxy. These amendments specifically removed staking rewards, a process where investors lock up their Ether to help secure the network and validate blockchain transactions in exchange for rewards.

According to analysts, removing staking from the filing eliminates the possibility that if the SEC classifies ETH as a security, that would hinder the approval of Ethereum ETFs.

Finance lawyer Scott Johnsson said the removal of staking was to be expected. "Bigger signal here is that there's no change to the commodity grantor trust structure and disclosures. All signs point to the SEC laying down its arguments for ETH as security."

But there’s a silver lining.

Fabien explained to The Defiant that avoiding staking could be beneficial for Ethereum. "One of the major risks for ETH involves the high percentage of its supply staked on platforms like Lido, Coinbase, and others. With the SEC potentially banning staking, it's likely that institutional demand will shift towards holding plain ETH instead of staked ETH."

Fabien added that this could "help reduce the risks associated with having a concentrated supply of staked ETH, such as vulnerabilities to consensus exploits."

Should the ETF applications be rejected, applicants have two options, Ryan Lee, Chief Analyst at Bitget Research, told the Defiant. “First, they may reapply and try to correct the reasons the SEC will state for rejecting the application. Secondly, they may seek court redress, a move that worked fine when Grayscale Investments sued the market regulator.”

Next, Solana ETFs?

According to Enright, once the initial approval of crypto assets beyond Bitcoin ETFs occurs, it could pave the way for other cryptocurrencies to gain similar recognition.

He said, "Once Pandora's box of legitimizing crypto assets beyond BTC has been opened, then we could see leaders in other sectors of the crypto market be recognized." This recognition could extend to cryptocurrencies such as "...Solana, Chainlink ETFs."

However, Nate Geraci, President of The ETF Store, holds a different perspective. He believes that the existence of a spot Solana ETF is contingent upon specific prerequisites.

"A spot Solana ETF won’t exist until a Chicago Mercantile Exchange-traded Solana futures product is listed or Congress puts a legitimate cryptocurrency regulatory framework in place."

Nevertheless, Cinneamhain Ventures partner Adam Cochran said that instead of Solana, other cryptocurrencies might be next in line for inclusion in a spot ETF. Cochran tweeted, "I think you get LTC and DOGE first. Much lower demand, but cleaner paths."