Ethereum Spikes Almost 20% Amidst Spot ETF Approval Buzz and Denial Rumours

Markets had largely anticipated the United States (US) Securities and Exchange Commission (SEC) rejections of spot Ether (ETH) exchange-traded funds (ETFs) starting this week.

However, ETH prices surged over 10% within minutes Monday afternoon after two prominent Bloomberg ETF analysts significantly increased their odds of SEC approval for spot ETH ETFs.

According to CoinGecko, Ethereum's price jumped from $3,143 to $3,428 in about 20 minutes.

At the time of writing, Ether is priced at $3,700, marking an over 19% rise over the past 24 hours.

Source: CoinGecko

This development comes just days ahead of the SEC’s final decision on VanEck’s spot Ether ETF application, scheduled for 23 May.

The commission has utilised the full extent of regulatory guidelines to prolong the review of VanEck’s application, marking it as the initial candidate among a series of spot Ether ETFs under evaluation.

Others in the queue include ARK 21Shares, Hashdex, Invesco Galaxy, BlackRock, and Fidelity, all awaiting a verdict from the SEC.

Speculations of 75% Chance SEC Will Approve Spot ETH ETF

According to Bloomberg ETF analysts Eric Balchunas and James Seyffart, there is "chatter" that the SEC is urging applicants to expedite their 19b-4 filings.

They now believe there is a 75% chance that the SEC will approve applications starting this week, a significant increase from their previous estimate of 25%.

Balchunas said:

"James Seyffart and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they'd be denied).”

Seyffart confirmed that their accounts were not hacked and that the updated odds are based on information from multiple sources.

He added:

“We should see a flurry of filings in the coming days if we are correct.”

Fox Business reporter Eleanor Terret also noted that a prospective ETF issuer indicated that things are "evolving in real-time" regarding their application's approval.

Previously, analysts had been pessimistic due to the lack of significant engagement between the SEC and the nine asset managers, including BlackRock, Fidelity, and Ark Invest/21 Shares, who had filed applications for spot Ethereum ETFs.

Past filings from the SEC, along with public statements by Chair Gary Gensler and reports of ongoing investigations, had indicated that the commission might be inclined to deny spot Ether ETF applications.

Industry analysts anticipate that, similar to the process with bitcoin ETFs, the securities regulator will make a collective decision on all Ethereum fund applications simultaneously.

Before Spot ETH ETF Approval, SEC Must Accept Both 19b-4s & S-1

Seyffart emphasized that for spot Ether ETFs to launch, approved 19b-4 filings must be accompanied by signed S-1 registration statements.

Even if 19b-4s are approved this week, it could take weeks or even months for the S-1s to be signed off.

This two-part approval process, involving separate approvals for 19b-4 and S-1 filings, was first highlighted by Nate Geraci, president of The ETF Store.

But before we continue, it is imperative we understand what 19b-4s and S-1 are and why everyone is talking about them with regard to Spot ETH ETFs approval.

Geraci highlighted the importance of two main components in the SEC's review procedure: the 19b-4s (Exchange Rule Changes) and S-1s (Registration Statements).

For Ethereum spot ETFs to launch, the SEC must approve both filings.

When exchanges like the NYSE or Nasdaq want to introduce new products or modify rules, they submit a 19b-4 filing to the SEC.

For ETH spot ETFs, these exchanges need SEC approval on their 19b-4s before listing the products and integrating them into their trading platforms.

The S-1s, or Registration Statements, are the initial registration forms required for newly sold securities to the public.

These documents provide detailed information on the company's financial situation, management, and operations.

In the case of spot ETH ETFs, the S-1 will detail the fund’s administration, structure, and strategy for mirroring Ethereum performance.

Approval of both 19b-4s and S-1s by the SEC is essential for legally offering these products to the public.

Geraci expressed confidence that the SEC might approve the 19b-4s but anticipated delays with the S-1s.

Without S-1 clearance, the funds cannot be legally sold to investors.

The SEC’s lack of engagement thus far has led to doubts and concerns about the approval process, suggesting a potentially extended period of evaluation for these filings.

Whale Activity Drives ETH Price Surge

A flurry of activity surrounds Ethereum as whales, large investors, have snapped up over 110,000 ETH in the past day, according to Ali Chart.

This $341 million buying spree hints at surging confidence in the cryptocurrency.

Did this significant acquisition by whales fuel the recent price surge, or was it the other way around?

Adding to the intrigue, the SEC's decision on the first Ethereum ETF looms large.

If approved, Ether could be traded on traditional stock exchanges, potentially opening the floodgates for new investors.

Technical indicators like the Klinger Oscillator, which has jumped from 286 to 490, also paint a bullish picture.

This suggests growing buying pressure, with traders either anticipating further price increases or reacting to the current price holding near resistance levels.

Many Expect SEC to Deny Ether ETFs

Several industry analysts anticipate the SEC's denial of Ether ETFs this month.

This expectation stems from several factors, including the SEC's reluctance to definitively classify Ether as either a security or a commodity.

Moreover, recent weeks have seen a lack of communication between the regulator and potential issuers, further clouding the approval process.

Additionally, the correlation between Ether's spot and futures markets, albeit weaker compared to Bitcoin, raises concerns.

Grayscale Investments' legal triumph against the SEC set a precedent for US spot Bitcoin ETF approval, suggesting a similar legal victory may be necessary before Ether funds receive regulatory clearance.

Jeff Embry, managing partner of crypto hedge fund Globe 3 Capital, said:

“If the SEC denies the ETH ETF, we would expect to see an initial sell off of 5% to 12%, but short lived, as the bull market is a much more powerful driver of pricing and will ultimately move pricing up.”

According to Crypto Rover, a prominent cryptocurrency trader and founder of CryptoSea, there is a prevailing expectation in the market for the ETF to face rejection.

In addition, SkyBridge Capital founder Anthony Scaramucci thinks not too:

“Maybe by the end of the year, but very unlikely in May. It has to happen, but [Gensler's] going to do things to delay it.”

Bitwise Chief Investment Officer Matt Hougan argued that such funds would gather more assets if they launch toward the end of the year, rather than in May.

He added:

“Wall Street and traditional finance just started ingesting this giant thing called bitcoin. They’re just getting their hands around it, and I think you need to give them longer to digest.”

Marshall Beard, Chief Operating Officer of Gemini, speculated that the approval process for spot ether ETFs could extend another six to nine months before receiving the SEC's green light.

Exchanges Asked to Update Key Filings

According to three sources familiar with the matter, exchanges are under pressure from the SEC to expedite updates to their 19b-4 filings, hinting at a potential acceleration in the approval process ahead of this Thursday's pivotal deadline.

However, even if approved, ETF issuers must await clearance for their S-1 applications before trading can commence.

The SEC's timeline for approving S-1 documents is open-ended, raising uncertainties.

Nonetheless, there is a perceptible shift in sentiment among some companies engaged with the SEC, with optimism replacing earlier frustrations over perceived delays.

Will Gensler be the Decider Again for Spot Ether ETFs?

The SEC's ongoing evaluation of whether Ethereum's native asset, ether, qualifies as a security adds another layer of complexity.

Should ether be classified as such, it could impact the fate of spot ether ETF applications.

Brian Quitenz, former Commissioner of the CFTC and current global head of policy at a16z crypto, emphasized that the SEC's approval of ether futures ETFs was a clear acknowledgment of ETH as a non-security, affirming its status beyond the SEC's regulatory purview.

He added:

“It will be interesting to watch what, if any, excuse the SEC uses if it were to delay or deny an ETH ETF given it has already informed the market on ETH being outside its jurisdiction.”

Reminiscent of past decisions, the fate of spot Ether ETFs hangs on the decisive vote of Gensler.

In January, approval for spot Bitcoin ETFs pivoted on a five-commissioner panel.

While two crypto-friendly commissioners, Hester Peirce and Mark Uyeda, favoured ETFs, Commissioners Caroline Crenshaw and Jaime Lizárraga opposed them.

Gensler's vote aligned with approval, clinching a 3–2 vote on 10 Jan 2024.

Now, the same five SEC commissioners face the pivotal decision on VanEck's spot Ether ETF on 23 May.