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On May 20, the price of Ether (ETH) surged over 18% after Eric Balchunas, a senior analyst at Bloomberg, raised the approval odds for the Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas noted that the United States Securities and Exchange Commission likely faced political pressure, as their previous position showed little engagement with ETF applicants.

Source: Eric Balchunas

Balchunas further mentioned that the SEC is reportedly asking exchanges like the NYSE and Nasdaq to update their filings, although there has been no official confirmation from the regulator. Nonetheless, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, stated that the final decision is still pending regarding the registration requirement for individual funds (S-1s).

Source: Nate Geraci

According to Geraci, the SEC could approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1), which could technically be delayed beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This allows the regulator additional time to review and approve these documents, considering the complexities and risks associated with structures involving Proof-of-Stake (PoS) cryptocurrencies.

Analyzing the impact on the upcoming $3 billion ETH options expiry

The impending decision on the spot Ethereum ETF has significantly heightened interest in the weekly and monthly ETH options expiries. At Deribit, the leading derivatives exchange, Ether options open interest for May 24 is recorded at $867 million, while for May 31, it reaches an impressive $3.22 billion. In comparison, CME’s monthly ETH options open interest stands at just $259 million, with OKX at $229 million.

The call-to-put ratio at Deribit heavily favors the call (buy) options, indicating that traders have been more active in purchasing them than the put (sell) options.

Deribit May 24 ETH options open interest, in ETH terms. Source: Deribit

If Ether's price stays above $3,600 on May 24 at 8:00 a.m. UTC, only $440k of the put instruments will be involved in the expiry. Essentially, a right to sell ETH at $3,400 or $3,500 becomes irrelevant if it trades above these levels.

Meanwhile, the holders of call options up to $3,600 will exercise their right, securing the price difference. This scenario results in a substantial $397 million open interest favoring the call options if ETH remains above $3,600 at the time of the weekly expiry.

The stakes are even higher for the monthly ETH expiry on May 31, as 97% of the put options are priced at $3,600 or lower, rendering them worthless if Ether’s price exceeds this threshold.

Bullish strategies vastly benefited from ETH’s rally above $3,600

Deribit May 31 ETH options open interest, in ETH terms. Source: Deribit

Although the final outcome will likely be far from the potential $3.22 billion open interest, it will significantly favor the call options. For instance, if Ether's price reaches $4,550 on May 31, the net open interest will favor call options by $1.92 billion. Even at $4,050, the difference remains favorable to the call options by $1.44 billion.

Related: SEC rumored to be reconsidering spot Ether ETF denial, say analysts

It's important to highlight that a trader could have sold a put option, thereby gaining positive exposure to Ether once it surpasses a certain price. Likewise, a seller of a call option benefits when the price of ETH falls, and more intricate strategies can be implemented using various expiry dates. Unfortunately, estimating this effect is not straightforward.

Ultimately, Ether's unexpected 18% increase took option traders by surprise, setting the stage for a substantial benefit to bullish strategies. These profits are likely to be reinvested to maintain the positive momentum, which bodes well for Ether's price following the expiry.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Key Points:

Six spot Ethereum ETF applicants, including Fidelity and ARK Invest, amended filings to exclude staking provisions after SEC feedback.

Experts believe removing staking boosts Ethereum’s legitimacy and staking returns.

Six proposed spot Ethereum ETF applicants have updated filings in response to comments from the Securities and Exchange Commission in the eleventh hour.

Read more: What Is A Spot Ethereum ETF? How Important Is The New Ether ETF?

Spot Ethereum ETF Applicants Are Actively Preparing for SEC Approval

In total, the spot Ethereum ETF applicants include VanEck, Fidelity, Franklin Templeton, ARK Invest, Grayscale, and Invesco Galaxy. Such amendments filed with the Cboe exchange include the changes in response to the SEC's concerns and notably remove staking on the Ethereum blockchain for possible ETFs.

Fidelity, Franklin Templeton, and ARK 21Shares specifically removed clauses on the validation of Ethereum proof-of-stake from their proposals. In its revised filing, Fidelity emphasized that neither the Trust nor its related parties would stake in the cryptocurrency. Grayscale also made the same statement in its proxy, removing the staking provisions.

Industry Experts Praise Removal of Staking Provisions

Such changes would be made to satisfy SEC requirements. Adam Cochran, a partner at Cinneamhain Ventures, and Ryan Berckmans, an investor in Ethereum, both noted that removing staking could help the overall Ethereum ecosystem by increasing the staking returns and legitimacy of Ethereum without adding risks associated with an ETF.

The Cboe exchange posted these revised 19b-4 filings in a 25-minute window on May 21, according to Bloomberg ETF analyst James Seyffart. While the revised filings are a step toward launching, the ETFs still cannot launch until the SEC also approves the corresponding S-1 registration statements. Seyffart noted further that the road to the approval remains long, with revisions still needed for the S-1 forms.

Although the 19b-4 forms might get approved as soon as Thursday, coinciding with VanEck and Cboe's deadline, the SEC's position on staking has led to strategic changes by the applicants for the spot Ethereum ETF. According to Bloomberg ETF analyst Eric Balchunas, the SEC's aversion to allowing staking in ETFs is due to political reasons, pointing out a complex regulatory environment for these financial instruments.

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