The recent letter from US Senators Jack Reed and Laphonza Butler to SEC Chair Gary Gensler has put a spotlight on the approval of crypto ETFs, including Ethereum ETFs. The Senators urged the SEC to reject proposals for ETFs beyond Bitcoin, citing concerns about potential risks for retail investors.
Doubts on Ethereum’s Trading Volumes and Integrity
One of the key concerns raised by the Senators is the lack of sufficient trading volumes and integrity in cryptocurrencies like Ethereum to support related ETPs. They pointed out that the futures markets for these cryptocurrencies may not correlate closely with spot markets, making effective market surveillance and fraud prevention challenging.
The Senators emphasized the need for the SEC to strictly limit the approval of ETFs referencing thinly traded cryptocurrencies or those susceptible to pump-and-dump schemes. They highlighted the vulnerability of markets for cryptocurrencies other than Bitcoin to misconduct, calling for measures to protect retail investors.
Impact on Ethereum ETF Approval Probability
Following the Senators’ letter, Bloomberg analysts significantly lowered the probability of a spot Ethereum ETF approval to 35%. This pessimism around the approval of ETH ETFs is attributed to concerns raised by lawmakers and the success of Bitcoin ETFs, which may have unsettled some politicians.
In response to the Senators’ letter, Paul Grewal, the legal chief at Coinbase, defended Ethereum’s market quality metrics and correlation between futures and spot markets. Grewal stressed that Ethereum and similar digital assets demonstrate robust market performance, surpassing even the most substantial traded equities.
Flawed Reasoning Behind Potential Ethereum ETF Rejection
Grewal argued that the SEC’s potential refusal of an Ethereum ETF application would be based on flawed reasoning, considering the high and consistent correlation between ETH’s future and spot market. He highlighted Ethereum’s market performance and called for a more thorough consideration of the asset’s potential for ETF approval.
The concerns raised by US Senators about the approval of crypto ETFs, particularly Ethereum ETFs, have cast a shadow of doubt on the likelihood of their approval. The contrasting views between lawmakers and industry experts like Coinbase’s legal chief highlight the complexity of the decision facing the SEC. Retail investors and market participants remain eager to see how the regulatory landscape for crypto ETFs will unfold in the coming months.
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