Ethereum Spot ETFs: Are We Seeing The Much Awaited Approval Soon?

The U.S. Securities and Exchange Commission (SEC) has requested aspiring ether exchange-traded fund (ETF) exchanges to update their 19b-4 filings ahead of a key deadline this week. This move has sparked speculation about the potential approval of these ETFs, though several hurdles remain.

SEC's Request for Updated Filings

The SEC's request for updated 19b-4 filings suggests a possible shift in their stance towards ether ETFs. Three sources told CoinDesk that the SEC might be moving towards approving these applications before a key deadline this Thursday. 

However, even if the 19b-4 filings are approved, issuers still need their S-1 applications approved before the products can begin trading. Due to the lack of a specific deadline, the SEC can take indefinite time to approve the S-1 documents.

Fidelity's Amended S-1 Filing

Meanwhile, Fidelity filed an amended S-1 registration statement with the SEC for its prospective Ethereum ETF. 

The amended statement removed all language about staking and staking rewards, likely due to the SEC's concerns about staking cryptocurrencies. This follows the SEC's lawsuit against Coinbase in June 2023 for providing access to staking through its platform, alleging securities law violations.

Increased Approval Odds

Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart have raised their odds for the approval of a spot ether ETF to 75% from 25%. This adjustment followed chatter suggesting the SEC might take a more favorable stance. However, Balchunas and Seyffart later clarified that these odds were related to the 19b-4 approvals.

Balchunas tweeted that there was speculation the SEC might change its stance on this increasingly political issue, causing significant market activity.

Market Reaction

The price of ether (ETH) jumped more than 20% in a day after the Bloomberg ETF analysts raised their approval odds. 

This development also affected the ether implied volatility curve, flattening it as 25-delta risk reversals hit year-to-date highs above 18%. Traders heavily bought $4000 calls for 24 May 2024 and 31 May, according to Presto Research analysts.

A Polymarket contract asking if an ether ETF would be approved by May 31 jumped from 10 cents to 55 cents, indicating a 55% chance of approval.

Implications of Approval

Standard Chartered expects the SEC to approve ether ETFs this week, according to The Block. The first round of spot ether ETF deadlines is approaching, with VanEck's on May 23 and Ark Invest/21Shares' on May 24.

Standard Chartered's Head of FX Research and Digital Assets Research, Geoff Kendrick, estimates that spot ETFs will drive inflows of 2.39-9.15 million ether in the first 12 months after approval. This equates to roughly $15 billion to $45 billion in U.S. dollar terms.

Kendrick also provided an ether year-end price target of $8,000 if spot ether ETFs receive approval. This target is based on the current 5.4% price ratio with bitcoin. 

Kendrick further added that with bitcoin potentially reaching $150,000 by the end of 2024, ether could see a price of $8,000. By the end of 2025, with Bitcoin possibly reaching $200,000, ether could hit $14,000.