Coinbase expects 30% to 40% chance of spot ETH ETF approval by month-end
In a May 15 report, Coinbase Institutional Research Analyst David Han asserted that the main factor that led the SEC to approve spot Bitcoin ETFs — the correlation between CME futures product and spot exchange rates — could also lead it to approve spot Ethereum ETFs.
Han said there is “room for surprise to the upside on this decision,” both on prediction markets and in the fact that Grayscale Ethereum Trust is trading at a 24% discount.
He conceded that the SEC’s silence has caused “uncertainty” and that spot ETH ETFs that specifically aim to engage in ETH staking are unlikely to gain approval.
Politics one possible factor
Coinbase is optimistic in part because of crypto’s key role in US politics. Han said that the SEC will spend political capital by denying spot ETH ETFs, a strategy that Coinbase believes is uncertain.
Bankless founder Ryan Sean Adams echoed that sentiment, stating that expectations for approval were low until Democrats “caught wind their anti-crypto SEC chair could lose them an election.”
Neither individual described any specific political developments. However, recent surveys show that crypto owners slightly favor Trump over Biden. Uniswap founder Hayden Adams has described crypto as a Republican rallying point in contrast to the Biden administration’s regulatory approach.
SEC Chair Gensler and two other voting commissioners are Democrats, while another two voting commissioners are Republicans, giving the agency both Democratic leadership and majority.
Approval could be delayed
Han noted that the SEC does not need to approve all spot applications at once.
Each spot ETH ETF application has a different decision deadline. The SEC must decide on VanEck’s application first by May 23 but can decide on BlackRock and Fidelity’s applications as late as August.
Han also argued that a May rejection 23 could lead to legal action that reverses the decision.
In January, SEC chair Gary Gensler cited a lawsuit from Grayscale over the proposed conversion of GBTC as one factor in the agency’s approval of spot Bitcoin ETFs. However, Grayscale has not stated that it will file a similar lawsuit around spot ETH ETFs.
Bloomberg’s Balchunas responds
Bloomberg analyst Eric Balchunas commented on Coinbase’s contrarian and optimistic stance, writing:
“It’s like a way out of the money call option to give themselves notoriety if off chance it happens. No harm if they wrong. Risk-free PR move.”
He concluded that predictions from himself and his colleagues are “braver and riskier reputationally than… [last minute random] contrarian calls.”
Balchunas posted a low estimate on May 14, when he said the odds of spot ETH ETF approvals are “slim to none.” In late March, he predicted “very pessimistic” 25% approval odds.
Crowd-sourced estimates provide similarly low odds. At the time of writing, Polymarket odds of approval were 10%, down from 16% at the time of Coinbase’s report.
