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Ethereum ETFs: Eric Balchunas, James Seyffart Appear Optimistic as SEC Considers Its Decision

Last Updated May 21, 2024 3:16 PM
Teuta Franjkovic
Last Updated May 21, 2024 3:16 PM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Gary Gensler’s vote was pivotal in approving spot Bitcoin ETFs and could influence the vote on spot Ethereum ETFs as well.
  • The SEC’s five-member panel will once again determine the fate of a major crypto ETF.
  • Bloomberg analysts say there is a big chance that Ethereum ETFs will be approved this week.

Ethereum rose more than 18% on May 20.

This upturn followed an optimistic reassessment  by Bloomberg ETF analysts Eric Balchunas and James Seyffart, who dramatically increased the likelihood of Ethereum ETF approval from 25% to 75%.

Analysts Boost Ethereum ETF Approval Odds, SEC Decision Still Pending

The Polymarket decentralized betting platform seemed to agree with the analysts, with its approval odds jumping  from 11% to 56%

ETH ETF betting
Credit: Polymarket

Eric Balchunas said  his revised forecast was based on “hearing chatter” about political pressure pushing the SEC towards approving the ETFs.  He also mentioned that the SEC had asked exchanges to update their filings—a move that suggests approval may be imminent.

Nate Geraci, president of The ETF Store, said  the SEC would need to approve both the exchange rule changes and registration statements before the ETFs launched.

However, the SEC has not officially confirmed this.

Deribit Sees Record Interest as SEC Decision Looms

The anticipation surrounding the SEC’s decision has significantly increased interest in Ethereum’s derivatives market. On derivatives exchange Deribit , Ethereum options’ open interest for the upcoming expiry dates is notably high. For May 24, the open interest stands at $867 million, while for May 31, it skyrockets to $3.22 billion. The call-to-put ratio at Deribit is heavily skewed towards call options, indicating people would rather buy than sell.

ETH options
Credit: Deribit

This suggests that many traders are betting on Ethereum’s price  maintaining or topping current levels. For instance, if Ethereum stays above $3,600 by 08:00 UTC on May 24, only $440,000 worth of put options  would be involved in the expiry, rendering the right to sell Ethereum below that price moot. On the other hand, holders of call options priced up to $3,600 would stand to gain by exercising their rights and capturing the price difference.

Looking towards the end of the month, the stakes increase even further. A whopping 97% of the put options are set at prices of $3,600 or lower. These options will become worthless if Ethereum’s price rises over the threshold, thus potentially favoring the call options heavily. For example, should Ethereum hit $4,550 on May 31, the net open interest could favor call options by as much as $1.92 billion.


Will SEC Crypto Policy Do a 180? Community Thinks So

Variant Fund Chief Legal Officer Jake Chervinsky said  it would be a surprise if spot ETH ETFs were approved. He added that such an approval could indicate a significant shift in US crypto policy following the SAB 121 vote, making it, potentially, more important than the ETF itself.

Seyffart agreed with Chervinsky’s remarks, noting that during his recent visit to DC for the Blockchain Summit, nearly everyone he spoke to anticipated a denial of the ETFs.

Gensler’s Decisive Vote Already Secured Bitcoin ETFs

In January, a panel of five United States Securities and Exchange Commission (SEC) members approved spot Bitcoin ETFs. Crypto-friendly commissioners Hester Pierce and Mark Uyeda supported the approval, while Caroline Crenshaw and Jaime Lizárraga opposed it.

This week the panel will bote on whether or not to approve Ethereum ETFs. Again, things could all depend on a crucial vote this week from SEC ChairGary Gensler.

On January 10, Gensler voted to approve spot Bitcoin ETFs, which passed with a 3-2 vote.

BTC ETF approval
Credit: SEC

This week, on May 23, the same five SEC Commissioners will vote on whether to approve or deny VanEck’s spot Ethereum ETF.

Who Are Commissioners To Decide on Spot Ethereum ETFs Fate?

  • Gary Gensler

Gary Gensler, who voted to approve spot Bitcoin ETFs in January, could have been influenced by Grayscale’s successful appeal against the SEC months earlier.

It remains uncertain how Gensler will handle the current applications for Ethereum ETFs. In an interview , he confirmed that the SEC’s decision was still under review.

He said :

“That’s something in front of our commission right now. We’re a five-member Commission, and those filings will take up at the appropriate time.”

Additionally, Gensler has recently faced criticism  for evading questions about whether Ethereum should be classified as a security, even when directly asked by Congress.

  • Mark Uyeda

Mark Uyeda, along with Hester Peirce, is one of the Commissioners who has criticized the SEC for its “regulation by enforcement” strategy toward the cryptocurrency industry.

He opposed the SEC’s decision to deny a Coinbase petition last December. At that time, he accused the agency of acting arbitrarily by not providing clear regulatory guidelines for the industry.

Uyeda also voted in favor of approving spot Bitcoin ETFs, although he voiced “strong concerns”  about the process. He argued that the SEC deviated from its “significant market” test, traditionally used for exchange-traded products. Instead, he claimes, he approved the spot Bitcoin ETFs through “other means.”

Despite describing the SEC’s approach as “flawed,” Uyeda supported the spot Bitcoin ETFs for what he referred to as “independent reasons.” However, he has not disclosed what those reasons are, leaving it uncertain whether they will influence his vote on spot Ethereum ETFs.

  • Hester Peirce

Hester Peirce, often dubbed “Crypto Mom,” is a strong advocate for digital assets and decentralization within the financial system. Although she hasn’t disclosed her stance on the spot Ethereum ETFs, her actions and previous statements offer some clues.

Peirce is deeply involved in the Ethereum community, having attended and spoken at ETHDenver in Colorado in late February. She has been a vocal critic of the SEC’s current approach to cryptocurrency regulation, labeling aspects  of it as “unproductive” and “pointless”. Given her pro-crypto stance, however, it certainly possible that she may support the approval of spot Ethereum ETFs.

  • Caroline Crenshaw

Caroline Crenshaw is known for her critical stance on the cryptocurrency industry and was a vocal dissenter in the decision to approve spot Bitcoin ETFs.

Crenshaw argued that the price of spot Bitcoin ETFs would be susceptible to fraud and market manipulation. She believed that approving these Bitcoin products would mean the SEC was failing in its duty to protect American investors.

There is no indication that Crenshaw has changed her views on spot crypto ETFs. She has emphasized  the lack of oversight and ways to detect and prevent fraud and manipulation in these markets.

She said :

“There is little to no systemic oversight of these markets, nor other sufficient mechanisms in place for the detection and deterrence of fraud and manipulation. [Spot trading] is fragmented and scattered across different international trading venues, with many markets not subject to meaningful regulation.”

  • Jaime Lizárraga

Jaime Lizárraga voted against approving the spot Bitcoin ETFs and notably did not issue a public statement following the decision.

In a speech at Brooklyn Law School in November 2022, Lizárraga expressed skepticism  about Bitcoin’s potential as a viable alternative to traditional finance and as a tool for genuine financial inclusivity.

He has consistently opposed the notion that the SEC employs a “regulation by enforcement” strategy. Lizárraga believes that most cryptocurrencies fall under US securities laws. As a result, he says, they are operating illegally.

There is nothing to suggest that Lizárraga has changed his views since the approval of the spot Bitcoin ETFs.

Potential Challenges for Ethereum ETFs

In addition to the ongoing reviews, there are other potential complications. The SEC Division of Enforcement, led by director Gurbir Grewal, is investigating whether Ethereum should be classified as a security.

Several fund managers have also expressed concerns about the SEC’s lack of engagement regarding spot Ethereum ETFs. A lawyer representing one of the applicants, Bitwise, mentioned that some fund managers now expect the SEC to deny their applications  this week.

Furthermore, Nate Geraci, President of The ETF Store, pointed out  that the SEC could technically approve the exchange rule changes but delay the launch by postponing the approval of the registration statements.

Bloomberg ETF analyst Eric Balchunas now predicts  only a 25% chance that at least one spot Ethereum ETF will be approved on May 23. This is a significant drop from his 70% January estimate.

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