In a significant development for the cryptocurrency industry, the likelihood of the United States Securities and Exchange Commission (SEC) approving an Ethereum spot exchange-traded fund (ETF) has dramatically increased. Eric Balchunas, a senior analyst at Bloomberg, recently raised the approval odds from 25% to 75%, suggesting that political pressures might be influencing the SEC’s stance.

Update: @JSeyff and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they'd be denied). See… https://t.co/gcxgYHz3om

— Eric Balchunas (@EricBalchunas) May 20, 2024

Previously, the SEC had shown minimal engagement with ETF applicants, maintaining a conservative approach toward cryptocurrency-related financial products. However, recent reports indicate that the SEC is asking exchanges such as the New York Stock Exchange (NYSE) and Nasdaq to update their filings, a move that could signal a change in their regulatory approach. Despite the lack of official confirmation from the SEC, this development has spurred significant speculation within the financial community.

Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, pointed out that the final decision on the registration requirement for individual funds (S-1s) remains pending. Geraci noted that the SEC could approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1). This procedural nuance implies that the SEC could delay the registration beyond the upcoming May 23 deadline for VanEck’s Ethereum spot ETF request, allowing the regulator additional time to thoroughly review and approve these complex documents.

SEC decision deadline this week on spot eth ETFs… SEC must approve both the 19b-4s (exchange rule changes) & S-1s (registration statements) for ETFs to launch. Technically possible for SEC to approve 19b-4s & then slow play S-1s (esp given reported lack of engagement here).

— Nate Geraci (@NateGeraci) May 19, 2024

Experts Weigh In on ETH ETF Approval Chances

The intricacies and risks associated with proof-of-stake (PoS) cryptocurrencies add another layer of complexity to the SEC’s decision-making process. Alex Thorn, Head of Research at Galaxy, highlighted the potential regulatory balancing act the SEC might undertake. Thorn speculated that the SEC might differentiate between Ethereum (ETH) not being classified as a security and staked ETH, or “staking as a service ETH,” potentially being treated as a security.

if the speculation about a 180 from SEC on the ethereum ETFs is true, i would guess they try to thread a needle between “ETH” NOT being a security and “staked ETH” (or even more flimsily, “staking as a service ETH”) as BEING a security.that would be somewhat congruent with…

— Alex Thorn (@intangiblecoins) May 21, 2024

He noted that this approach would be consistent with the SEC’s various court cases and investigations, potentially allowing the SEC to approve Ethereum ETFs while maintaining its previously stated positions. Prominent cryptocurrency lawyer Jake Chervinsky also weighed in on the potential implications of the SEC approving a spot ETH ETF.

Chervinsky remarked that if the spot ETH ETF were approved, it would come as a genuine surprise to everyone he knew in Washington, D.C., who was closely involved in the process. He added that while this did not mean approval was impossible, it would likely indicate a significant shift in US crypto policy following the SAB 121 vote, potentially more important than the ETF itself.

If the spot ETH ETF is approved, it will be a true shock to everyone I know in DC who's close to this process.That doesn't mean it won't happen.It means approval could signal a major shift in US crypto policy after the SAB 121 vote, perhaps more important than the ETF itself. https://t.co/ru0iD0GJIC

— Jake Chervinsky (@jchervinsky) May 20, 2024

Overall, the decision to approve an Ethereum spot ETF could mark a pivotal moment in the United States’ approach to cryptocurrency regulation. If approved, it could signal a broader acceptance and integration of digital assets into mainstream financial markets, potentially reshaping the landscape of US crypto policy and offering a new level of legitimacy to cryptocurrencies.