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How likely is it to happen? If so, when will it be approved?
In January 2024, a Bitcoin spot ETF was finally approved in the United States and trading began. There is growing expectation in the cryptocurrency industry that an Ethereum spot ETF will be next. Here, we summarize the current situation and issues surrounding the approval of an Ethereum spot ETF.
On January 11, the US Securities and Exchange Commission (SEC) approved a Bitcoin spot ETF, a long-cherished wish of the cryptocurrency industry.
An ETF (Exchange Traded Fund) is a "Exchange Traded Fund" that is listed and traded on a stock exchange. As you know, anyone can buy Bitcoin on a cryptocurrency exchange. So why is the approval of an ETF so important?
ETFs are a huge market that allows you to invest in various financial products such as stocks, bonds, and gold, and adding Bitcoin to the lineup is proof that it is "recognized as a trustworthy financial product."
Until now, Bitcoin has only been popular in the narrow world of the cryptocurrency industry, but it will now be on par with traditional financial products such as stocks.
In addition, the approval of the ETF and the start of trading will open the door to Bitcoin investment to investors around the world who have accounts at stock exchanges, and it is expected that this will be a catalyst for more funds to flow into the cryptocurrency industry than ever before.
For this reason, the cryptocurrency industry has been aiming to realize a Bitcoin spot ETF for many years.
Following the realization of a Bitcoin spot ETF, there are now growing calls for the realization of an Ethereum spot ETF, which will have the second largest market capitalization after Bitcoin.
So, to understand the current state of an Ethereum spot ETF, let's first look back at how a Bitcoin spot ETF came to be approved.
▶︎BTC price chart from December 20, 2023 (source: CoinMarketCap)
Prices fluctuated wildly due to conflicting information over the New Year period regarding the approval or rejection of a spot ETF.
On January 9, the official SEC account of X (formerly Twitter) announced the ETF's approval, but it was later revealed to be a false report, and the cryptocurrency market has been thrown into disarray by this topic. After the ETF was officially approved, prices temporarily soared, but have since returned to their original levels.
The approval of cryptocurrency ETFs in the United States is heavily influenced by the issue of securities. The issue of securities is a debate in the United States about whether a cryptocurrency is legally a security and whether it should be regulated and managed under securities law.
If a cryptocurrency is a security, it will be considered an illegal or evasive financial product (currently), and it will be difficult to obtain approval for ETF listing. The standard for determining whether a cryptocurrency is a security is, simply put, whether a specific organization sold the cryptocurrency to investors with the expectation of profit (it is actually more complicated, but we will explain it simply here).
For many years, the SEC has been keeping a strict eye on the cryptocurrency industry, which has been criticized for its use in fraud and money laundering, and has often commented that "most cryptocurrencies are securities and are illegal."
And for the Bitcoin spot ETF, it has rejected many applications from investment companies over the seven years since the first application. However, since Bitcoin is only newly issued through mining and is not sold to investors by operating companies (Bitcoin does not have an operating body), there is no logic to determine that it is a security.
In fact, the SEC itself has commented multiple times that "Bitcoin is not a security" even before the approval of spot ETFs.
In addition, the SEC has already approved a Bitcoin futures ETF (an ETF linked to the futures trading price of Bitcoin) in 2021, and it has been pointed out in court that "despite the fact that Bitcoin spot ETFs and futures ETFs are similar financial products, the SEC's decision to approve futures but not spot ETFs is insufficiently explained and arbitrary."
As a result of this, the SEC has already lost the logic to not approve a Bitcoin spot ETF, and in a sense it can be said that it has "reluctantly" approved the application for a Bitcoin spot ETF.
So, let's consider how the SEC will judge an Ethereum spot ETF.
As can be seen from the history of Bitcoin spot ETF, the first question is whether Ethereum (ETH) is a security or not.
The SEC has maintained the stance that "Bitcoin is not a security" while "most crypto assets other than Bitcoin are securities" for many years. Among them, SEC has not stated that Ethereum is not a security as clearly as Bitcoin, but has not clearly stated that it is a security like other crypto assets, so it has taken a gray area.
This is because Ethereum was initially issued and sold to raise funds, but is now sufficiently decentralized and distributed, so it is not sold by a specific organization for profit = it is not a security.
In addition, the Ethereum project has investors check a consent form that says "I will purchase ETH for the purpose of Ethereum gas tokens" at the time of initial sale. This is the logic that the purpose is gas tokens, not profit from the rise in ETH price = it is not an investment contract = it is not a security.
Therefore, it can be said that it is difficult to establish the logic that Ethereum is a security (and therefore an ETF should not be approved) in the same way as Bitcoin.
In fact, an Ethereum futures ETF has already been approved by the SEC in September 2023. As with Bitcoin, the fact that a futures ETF has been approved first is also a factor that increases the possibility of a spot ETF being approved in the future.
Given these backgrounds, it is very likely that an Ethereum spot ETF will be approved in the future. However, it is unclear when this will happen.
Currently, investment companies have already applied for an Ethereum spot ETF in the United States, and the review is underway. In the United States, there are multiple deadlines for the ETF approval process, with the maximum being 240 days. The final approval deadline for Ethereum spot ETFs that have currently been applied for is May 2024, so the first topic of discussion at this time should be whether or not an Ethereum spot ETF will be approved.
Opinions are divided on whether an Ethereum spot ETF will be approved in May. Some believe that since Bitcoin has been approved, Ethereum will also be approved smoothly, but others say that "the SEC will want to carefully observe the future and impact of a Bitcoin spot ETF before making a decision."
In order for an Ethereum spot ETF to be approved, the SEC will first need to clearly state its intention that "Ethereum is not a security."
It should also be remembered that the SEC is very cautious and continues to take a strict stance toward crypto assets, as shown by the fact that it took a full seven years from the first application for a Bitcoin spot ETF to be approved.
Even if an Ethereum spot ETF is eventually approved, it may be reasonable to think that it may take several years.
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