New research conducted by Coinbase suggests that the approval of a spot Ethereum (ETH) exchange-traded fund (ETF) could come as a surprise to investors. Coinbase Institutional, in a recent note, asserts that it is not a matter of if, but when the US Securities and Exchange Commission (SEC) will greenlight an ETH ETF. The SEC is likely to approach the decision in the same manner it did with Bitcoin (BTC) ETFs earlier this year. Coinbase points out that the SEC examined the strong correlation between the price of spot BTC on the Chicago Mercantile Exchange (CME), which is also applicable to Ethereum. The exchange states, “While there is uncertainty surrounding the timing of approval due to the SEC’s lack of communication with issuers, we believe that the existence of a US spot ETH ETF is inevitable. In fact, the primary rationale used to approve spot BTC ETFs can be equally applied to spot ETH ETFs. The correlation between the CME futures product and spot exchange rates is significant enough that ‘CME’s surveillance can reasonably be expected to detect misconduct [in the spot market].’ The correlation analysis previously presented by Coinbase and Grayscale suggests that the spot and futures correlation for ETH markets is similar to that for BTC.” Coinbase anticipates that despite the slim chances of an Ethereum ETF receiving approval in May, the SEC may unexpectedly give it the green light. According to Coinbase, “We believe there is potential for a positive outcome in this decision. Polymarket currently places the odds of approval on May 31, 2024, at 16%, and the Grayscale Ethereum Trust (ETHE) is trading at a 24% discount to its net asset value (NAV). We estimate that the likelihood of approval is closer to 30-40%. As cryptocurrencies become more relevant in the political landscape, it is also uncertain whether the SEC would be willing to bear the political cost required to deny an ETF. Even if the initial deadline on May 23, 2024, results in a rejection, we believe there is a high chance that litigation could reverse the decision. It is also important to note that not all spot ETH ETF applications need to be approved simultaneously. In fact, Commissioner Uyeda’s approval statement regarding the spot BTC ETF criticized the hidden ‘motivation for expediting the approval of the applications, which is to prevent a first-mover advantage.'”
Source: The Daily Hodl
