Bloomberg ETF analysts put the chance of approval this week at 75%.

Alex Thorn, head of research at Galaxy Digital, said that the U.S. Securities and Exchange Commission (SEC) may approve an Ethereum exchange-traded fund (ETF) that does not include staking functionality. He believes the SEC will distinguish between Ethereum (ETH) and staked ETH during the approval process.

“If market speculation about a complete about-face on the SEC’s position on an Ethereum ETF materializes, I expect the SEC to explore a compromise that distinguishes between ‘ETH’ as not a security and ‘collateralized ETH’ (or, more impractically, ‘collateralization services for ETH’) as a security,” Thorn said.

Thorn said that if the SEC draws a line between $ETH and staking ETH, it could potentially approve a spot Ethereum ETF without violating past actions. This includes the alleged investigation of the Ethereum Foundation and entities associated with Ethereum like Consensys.

Thorn further stated: “Given this and possible other factors, we may expect that the SEC will not allow these ETFs to use their ETH as collateral.”

Recently, comments from Bloomberg ETF analysts James Seyffart and Eric Balchunas sparked discussion about a possible change in the SEC’s stance.

The odds of a spot Ethereum ETF being approved have risen to 75%, two analysts said on Monday, with Balchunas noting that the key factor appears to be a “political issue.”

Commenting on a post by Van Buren Capital general partner Scott Johnsson on the issue, Bloomberg ETF analyst James Seyffart suggested that unpledging could be the deciding factor.

The SEC’s decision on the VanEck Spot Ethereum ETF is expected to be made by May 23, while the deadline for the ARK21 Shares Ethereum ETF is May 24.

Maintaining a middle ground

In addition to the latest developments, exchanges that intend to launch and trade spot Ethereum ETF shares have reportedly been asked to re-amend their 19b-4 filings. This suggests a possible scenario: the SEC may greenlight the 19b-4 filing of a spot Ethereum ETF, but delay the processing of the S-1 application at the same time.

In order for an ETF to be approved and listed for trading, the issuer must obtain approval from the SEC for two applications: a 19b-4 application, which ensures regulatory compliance for its listing; and an S-1 application, which allows the ETF to be fully up and running.

In short, while a 19b-4 can technically be approved without an S-1, an ETF cannot operate without an S-1 approval. Trading in the spot Bitcoin ETF began within days of both applications being approved almost simultaneously.

The SEC may want to avoid opposition from the cryptocurrency community, but may not be willing to allow a spot Ethereum ETF to enter the market at this time.

To find a balance, the SEC might approve a 19b-4 filing for a general product but delay approval of individual issuers’ S-1 filings. Such a strategy would allow the SEC to effectively halt the launch of a specific Ethereum ETF pending a more in-depth review.

The SEC’s consideration of a spot Ethereum ETF comes amid growing regulatory scrutiny of cryptocurrencies in the United States.

Cryptocurrency has increasingly become a political point of contention between the two parties that dominate U.S. politics. There have been signs that Democrats are more inclined to increase enforcement, although not all Democrats are against cryptocurrencies. Last Thursday, 21 Democrats joined Republicans in voting in favor of a resolution to overturn the SEC's Staff Accounting Bulletin No. 121 (SAB 121).

Under the Biden administration, the United States has become known for its strict regulation of the cryptocurrency industry. The U.S. Securities and Exchange Commission (SEC) is a typical example of this skeptical attitude. In recent years, the legal measures taken by this federal agency against cryptocurrency-related entities have been the focus of public discussion.

Conclusion:

As the U.S. government continues to strengthen its regulation of cryptocurrencies, the SEC is faced with the decision to approve the spot Ethereum ETF, which not only tests the wisdom of the regulator, but also affects the future direction of the entire cryptocurrency market. With the analysis of Alex Thorn, head of research at Galaxy Digital, the market expects that the SEC may adopt a more detailed and differentiated strategy to clearly distinguish between ETH and pledged ETH to determine whether they constitute securities. This strategy may allow the SEC to provide investors with a certain degree of exposure to the Ethereum market while not fully opening the market to Ethereum ETFs.

However, whether it is approving 19b-4 filing or postponing S-1 application, every step of the SEC's move may become a milestone in shaping the cryptocurrency market and regulatory framework. At the same time, with the different positions on cryptocurrencies between political parties, policy making in this area may also become a new focus of political debate in the United States. We expect that the SEC's decision will bring more transparency and certainty to the market, while providing a solid foundation for the healthy development of the cryptocurrency industry. #SEC #以太坊ETF