Coinbase analyst David Han has suggested that the market may be underestimating the likelihood and timing of a potential spot Ethereum exchange-traded fund (ETF) approval. Despite prevailing skepticism, Han believes Ethereum could surprise investors in the coming months due to the absence of significant supply-side pressures.
Potential Approval Odds
In a report released on Thursday, Han stated that Ethereum might have a greater chance of receiving ETF approval than the market currently anticipates. The Securities and Exchange Commission (SEC) has key deadlines approaching on May 23 and May 24 to decide on the applications for spot Ethereum ETFs from VanEck and ArkInvest/21Shares. Although the consensus among market analysts is pessimistic, Han remains optimistic.
Bloomberg ETF analyst Eric Balchunas described the likelihood of approval as “slim to none” due to the SEC’s silence on the matter. However, Coinbase maintains that the approval of a U.S. spot Ethereum ETF is a matter of “when, not if.” Han argues that the rationale used for approving spot Bitcoin ETFs, which relies on the correlation between the CME futures product and spot exchange rates, applies equally to Ethereum.
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Regulatory Challenges
Ethereum’s primary challenge lies in its proof-of-stake mechanism, which differs from Bitcoin’s proof-of-work system. With clear regulatory guidance on staking, Han believes that spot Ethereum ETFs that include staking rewards are likely to be approved soon. Notably, Ark Invest recently removed the staking component from its spot Ethereum ETF application, indicating a strategic move to align with regulatory expectations.
Despite this adjustment, Han argues that the status of unstaked ether should not be affected. The Ethereum-based decentralized prediction market platform Polymarket is currently pricing the odds of a May approval at 16%. Meanwhile, the Grayscale Ethereum Trust (ETHE) is trading at a 24% discount to its net asset value, reflecting market skepticism.
Coinbase Optimistic on Spot Ethereum ETF Approval
While expectations for approval this month have waned, Coinbase believes the odds are closer to 30-40%, especially as cryptocurrency increasingly becomes a political issue. Potential litigation in the event of denials could also influence the SEC’s decision-making process. Balchunas noted a detail in a spot Ethereum ETF filing that suggested the SEC might consider ether security, further complicating the approval landscape.
Ether’s performance in 2024 has been lackluster compared to other large-cap cryptocurrencies. It has gained around 33% year-to-date, lagging behind Bitcoin’s 57% increase and Solana’s 64% rise. Despite this underperformance, Han remains positive about Ethereum’s long-term prospects due to its strong demand drivers.
Ethereum’s Unique Position
According to Han, Ethereum benefits from a combination of “store-of-value” and “technology-token” narratives. While Bitcoin’s ETF approval reinforced its status as a macro asset, Ethereum faces competition from other Layer 1 blockchains like Solana. Nevertheless, Ethereum retains significant advantages, such as a mature developer ecosystem, the widespread adoption of its Ethereum Virtual Machine (EVM) platform, and the utility of ether as collateral in decentralized finance (DeFi).
Han highlights that ether’s trading patterns demonstrate its ability to capture both store-of-value and technology-token roles. It shows a high correlation with Bitcoin, behaving similarly to a store-of-value asset, but also decouples during prolonged Bitcoin price appreciations, trading more like a tech-oriented cryptocurrency. This duality suggests that ether has room to outperform in the second half of 2024 despite its year-to-date underperformance.
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