Crypto exchange Coinbase believes that the chances of the SEC approving Ethereum ETFs by the end of the month are between 30% and 40%.
In a May 15 report, Coinbase Institutional Research Analyst David Han claimed that the key factor leading to the SEC approving spot Bitcoin ETFs — the correlation between CME futures products and spot exchange rates — could also lead to it approving spot Ethereum ETFs.
Han said there is “room for positive surprise with this decision,” both in the prediction markets and in the fact that Grayscale Ethereum Trust is trading at a 24% discount.
He admitted that the SEC’s silence has created “uncertainty” and that spot ETH ETFs specifically aimed at ETH staking are unlikely to gain approval.
Politics a possible factor
Coinbase is bullish in part because of crypto’s key role in American politics. Han said the SEC will spend political capital by rejecting spot ETH ETFs, a strategy that Coinbase said is uncertain.
Bankless founder Ryan Sean Adams echoed that sentiment, stating that expectations for approval were low until Democrats “got wind that their anti-crypto SEC chairman might lose them an election.”
Neither individual described any specific political developments. However, recent surveys show that crypto owners slightly prefer 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 Chairman Gensler and two other voting commissioners are Democrats, while another two voting commissioners are Republicans, giving the agency both Democratic leadership and a majority.
Approval may be delayed
Han noted that the SEC does not have to approve all spot applications at once.
Each spot ETH ETF application has a different decision deadline. The SEC must first decide on VanEck’s application before May 23, but cannot decide on the applications of BlackRock and Fidelity until August.
Han also argued that a rejection in May 23 could lead to legal action reversing the decision.
In January, SEC Chairman Gary Gensler cited a lawsuit from Grayscale over GBTC’s proposed conversion as a factor in the agency’s approval of spot Bitcoin ETFs. However, Grayscale has not stated that it will file a similar lawsuit surrounding spot ETH ETFs.
Bloomberg’s Balchunas responds
Bloomberg analyst Eric Balchunas commented on Coinbase’s contrarian and bullish stance, writing:
“It’s like a way out of the money call option to make oneself known if it happens. It doesn’t hurt if they’re wrong. Risk-free PR move.”
He concluded that his and his colleagues’ predictions are “reputationally braver and riskier than… [last minute random] contrarian calls.”
Balchunas posted a low estimate on May 14, when he said the chances of spot ETH ETF approval are “small to zero.” In late March, he predicted a “very pessimistic” approval rating of 25%.
Crowdsourced estimates offer similarly low odds. At the time of writing, Polymarket’s approval rating was 10%, compared to 16% at the time of the Coinbase report.