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US SEC to Reject Ethereum ETFs in May: Experts Insight on SEC Approval and Denial Game

In a historic move, while on one side, Hong Kong has approved spot Bitcoin and Ether ETFs in the US it may be rejected due to regulatory issues. Recent discussions between U.S. issuers and the SEC regarding the potential launch of exchange-traded funds (ETFs) linked to the price of ether have left issuers anticipating rejection, according to four sources familiar with the matter. 

Reuters reports, that seven other issuers, including VanEck and ARK Investment Management, want to sell ETFs that track the spot price of ether, which is the second-largest cryptocurrency in the world after bitcoin. However, the meetings with the SEC have mostly been one-sided and haven’t gone into detail about the planned products. This is very different from the careful considerations that went into the SEC’s historic approval of spot bitcoin ETFs in January.

A Possible Delay or Rejection?

Even though issuers made arguments based on previously approved bitcoin ETFs and ether futures-based ETFs, the securities regulators have not stated any specific doubts or engaged in conversations, which has led some to expect a possible denial. Issuers are worried about this change in the SEC’s approach, a sign of an unfavorable time for Ether ETFs. The crypto industry was hopeful that more people would accept it after spot bitcoin ETFs were approved, so this loss would be disappointing.

Many analysts have predicted that there might be possible delays in ether ETFs. Some issuers have said they plan to file more paperwork with the SEC to keep the conversation going, but the market performance of Ether has already been affected by the belief that it will be turned down. Even though its value has gone up 39% this year, ether is still below bitcoin, which has gone up over 51% and hit new all-time highs last month. This difference shows how uncertain things are still about Ether’s regulatory standing and its chances of becoming widely used.

According to VettaFi ETF data analyst Todd Rosenbluth, the approval for a spot Ether ETF is likely to face delays, possibly until later in 2024 or beyond, due to the uncertain regulatory landscape. Bloomberg ETF analyst Eric Balchunas previously estimated a 35% chance of SEC approval for such an ETF in May, highlighting indications that the SEC might be intentionally avoiding communication with potential fund issuers.

In contrast to Bitcoin ETFs, the SEC has done a few meetings for Ether products. They mainly focus on data observation, suggesting approval may be postponed pending further market developments. If the SEC ultimately rejects ether ETFs, some applicants anticipate potential legal challenges before such products are eventually approved. However, the regulatory landscape remains uncertain, leaving issuers and investors awaiting further clarity from the SEC.

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