Ethereum
Coinbase Research Says ‘Upside Surprise’ Possible for Ethereum ETF Decision – Here’s Why
Coinbase research suggests that decisions on an Ethereum spot (ETH) exchange-traded funds (ETFs) could surprise investors.
In a new note, Coinbase Institutional said that an ETH ETF is a question of when, not if, and that the U.S. Securities and Exchange Commission (SEC) is likely reviewing the decision with the same rationale as when approving Bitcoin (BTC) ETF earlier this year.
Coinbase notes that the SEC looked into the strong correlation between the spot price of BTC on the Chicago Mercantile Exchange (CME) – which is also true for Ethereum.
“While there is uncertainty about timely approval given the SEC’s apparent silence toward issuers, we believe the existence of a spot ETH ETF in the United States remains a question to know when, not if. In fact, the main rationale used to approve spot BTC ETFs also applies to spot ETH ETFs. That is, the correlation between the CME futures product and spot exchange rates is high enough that CME monitoring could reasonably be expected to detect…misconduct. [in the spot market]’.
The correlation study period in the BTC spot approval notice began in March 2021, one month after the launch of CME ETH futures. We believe this evaluation period was deliberately chosen so that similar reasoning can be applied to the ETH markets. Indeed, correlation analysis previously presented by Coinbase and Grayscale suggests that the spot and futures correlation for the ETH markets is similar to that of BTC.
Coinbase says that despite the slim chances of an Ethereum ETF being approved in May, markets could receive an unexpected approval from the SEC.
“We think there is room for positive surprise regarding this decision. Polymarket puts the probability of approval on May 31, 2024 at 16%, and the Grayscale Ethereum Trust (ETHE) trades at a 24% discount to net asset value (NAV). We believe the chances of approval are closer to 30-40%.
As crypto begins to take shape as an election issue, it is also less certain, in our view, that the SEC would be willing to provide the political capital necessary to support a pushback. Even if the first deadline of May 23, 2024 is rejected, we believe it is highly likely that litigation could overturn this decision. It should also be noted that not all ETH ETF spot applications need to be approved at the same time. In fact, Commissioner Uyeda’s statement of approval regarding the BTC spot ETF criticized the “disguised motivation for expediting the approval of applications, which is to prevent a first-mover advantage.”
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