The U.S. Securities and Exchange Commission (SEC) recently granted approval for spot Ethereum exchange-traded funds (ETFs), stirring discussions on the underlying reasons. Analysts from Bernstein, a research and brokerage firm, have offered insights into the SEC's decision-making process.

Factors Influencing the SEC’s Decision

Initially, there were speculations of political pressure from Democrats aiming to sway undecided voters before the U.S. Presidential elections in November. However, Bernstein analysts presented a contrasting viewpoint, suggesting that this theory lost credibility after President Joe Biden blocked the proposal to repeal the SEC’s Staff Accounting Bulletin No. 121.

Bernstein’s Gautam Chhugani and Mahika Sapra highlighted the SEC's dilemma due to similarities between Ethereum ETFs and spot Bitcoin ETFs. Both exhibit correlations with spot and futures markets, along with active futures products on the Chicago Mercantile Exchange, reinforcing Ethereum's classification as a commodity.

Varied Market Expectations

The SEC likely adopted a pragmatic stance to avert potential lawsuits and legal disputes, indicating a nuanced decision-making process not solely steered by political influences. Despite the unexpected approval, this decision carries significant weight for market participants, signaling a favorable industry trend.

Applicants for spot Ethereum ETFs perceived rejection as more probable, especially with the SEC staff maintaining silence up to the decision date. The sudden approval surprised many, notably with issuers requested to resubmit essential documents shortly before the decision deadline, indicating a sudden change in circumstances.

Key Insights for Market Players

• The SEC's approval of spot Ethereum ETFs reflects a positive regulatory attitude towards cryptocurrency markets.
• Similarities between Bitcoin and Ethereum ETFs considerably influenced the SEC's verdict.
• Potential pent-up demand for Ethereum ETFs may impact ETH prices leading up to the ETF launch.
• Approved ETF issuers such as VanEck, BlackRock, and Fidelity are gearing up to finalize their registration procedures.

While inflows into spot Ethereum ETFs are predicted to be lower than those for Bitcoin ETFs, Bernstein anticipates robust demand from market participants, potentially driving positive price trends for ETH pre-ETF launch.

The SEC's official approval on May 23 encompassed applications from prominent organizations like VanEck, BlackRock, and Fidelity. These ETF issuers are currently progressing with their registration statements, a process expected to span several weeks to months.