Ethereum ETF Approval Unlikely in May: DBS Bank

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The SEC is unlikely to approve Ethereum ETFs in May, according to DBS Bank.

In a new crypto market analysis, DBS says although Ethereum's scalability has improved with the recent Dencun upgrade, questions over an SEC approval of Ether ETFs will remain an overhang.

The value of Ethereum peaked at $3148 in March, but the asset has retreated some 20% from the highs to quote at $3324 at the time of writing, with enthusiasm tempered by an SEC request for public comments on a pending application for a rule change to permit the trading of an Ethereum trust.

The SEC raised questions about Ethereum's proof-of-stake consensus mechanism and concentration of control and whether this poses concerns about Ethereum’s susceptibility to fraud and manipulation.

"Ethereum’s scalability has improved with the Dencun upgrade, but SEC questions on Ether remain an overhang," says Chang Wei Liang, FX & Credit Strategist at DBS Bank. "It suggests that SEC approval of Ethereum ETFs may not come in May, despite its earlier approvals of Bitcoin ETFs, and the same availability of Ether as Bitcoin on the futures market."

In January, the SEC approved 11 Bitcoin ETFs, and by the end of the first quarter, these products had attracted $12.1BN worth of inflows, contributing to a surge in Bitcoin's value.

Crypto market participants hope a similar approval of Ethereum ETFs will facilitate similar price gains in ETH.

"The approval of Bitcoin ETFs has set a precedent, fueling speculation about the potential for Ethereum-centric products. Spot ETH ETFs seem like the obvious next step for the SEC as Ethereum is the only other cryptocurrency that the SEC has long considered a currency and not a security," says Sam Cooling, an analyst for B2C Thailand.

Manuel Villegas Franceschi, Next Generation Research analyst at Julius Baer, says expectations of a launch of spot Ethereum ETFs in the U.S. are standing on a much softer footing, as reflected in the recent underperformance of Ethereum versus Bitcoin.

"That said, the market mood remains upbeat across digital assets and as long as USD liquidity continues to increase, investors and speculators alike will continue looking at the rest of the blockchain ecosystem with little discrimination on what has value and what does not," says Franceschi.

Franceschi explains that the key differentiator between Bitcoin and Ethereum in the eye of regulators hinges on inflation. In particular, the Howey Test's definition of an investment contract might give the SEC grounds to cling to the asset’s burning mechanism and its qualities as an investment contract.

"In short, if the burning mechanism does not offset the staking emissions, the blockchain enters an inflationary state," says Franceschi.

The Julius Baer analyst notes that investors are aware that an ETH ETF is less likely to be approved than its Bitcoin counterpart.

"The asset has primarily rallied on expectations of a potential approval of the spot ETFs in the US (the likelihood of which is not as high as it was at the beginning of the year), something investors can easily see in the 25% discount against the net-asset value of the largest closed-end Ethereum fund in the US, which has acted as a live-betting line for the approvals," says Franceschi.