Is the SEC’s expected spot ether ETF denial priced in?

Ether would be set to re-test its 2021 price high should the regulator unexpectedly approve ETH funds, industry watchers say

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Artwork by Crystal Le

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Industry watchers seem to agree that if US regulators approve spot ether ETFs, it would be a bullish development for the asset. What’s more, they believe that even if these ETFs are not approved, the impact on the market will not be significantly negative.

That is in part due to market participants’ low expectations that the Securities and Exchange Commission will approve such funds this time around. 

The SEC has until May 23 to rule on a proposed ETH fund by VanEck. Its deadline for a similar planned offering from Ark Invest and 21Shares is the next day.

Segment observers expect, like with bitcoin ETFs, that the securities regulator will rule on all the ETH fund applications at once.   

Ether’s price was about $3,140 at 2:30 pm ET Monday — up about 7% from a week ago but a far cry from its year-to-date high above $4,000 in mid-March.

A spot ether ETF approval decision would spur immediate price appreciation and a medium-term new all-time high above $4,800, according to Jeff Embry, managing partner of crypto hedge fund Globe 3 Capital.

“The difference between the bitcoin [ETF] approval and ETH’s possible approval, is that the market had fully expected the bitcoin approval and had pre-priced it, thus causing an initial sell off on the news,” Embry told Blockworks.

Contrarily, various industry watchers have said they expect the SEC to deny ether ETFs this month

Reasons include the SEC’s hesitation to clearly label ether as a security or a commodity, the regulator’s lack of engagement with prospective issuers in recent weeks and the slightly weaker correlation between the ether spot and futures markets compared to bitcoin.

It also took Grayscale Investments’ legal victory against the SEC to help get US spot bitcoin ETFs approved — something some lawyers said might be needed before ether funds get the green light

Read more: Why the SEC could choose to deny ether ETFs, and what could happen next

The expected SEC rejection of spot ether ETFs is reflected in ETH’s roughly 20% price dip since mid-March, Embry noted.

“If the SEC denies the ETH ETF, we would expect to see an initial sell off of 5% to 12%, but short lived, as the bull market is a much more powerful driver of pricing and will ultimately move pricing up,” the executive added.

Indeed, the approval of an Ethereum ETF next week is viewed as a low probability event, and ether is priced as such, said LMAX Group market strategist Joel Kruger.

There might be room for ETH to drop lower in the case of a denial — though such a downtrend should not exceed 10%, he added.  

“If on the other hand the market is surprised with an approval, we could see the price of ETH surge by some 30% in the immediate aftermath,” Kruger said, “with such a move setting the stage for a run to retest the 2021 record high in the weeks that follow.”


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