Main Challenges in Getting Ethereum ETF Approved

The journey toward approval of Ethereum (ETH) exchange-traded funds (ETFs) faces considerable hurdles despite its promise for the crypto market.

The United States Securities and Exchange Commission (SEC) has demonstrated a cautious approach, reflecting the journey of Bitcoin ETFs before their eventual approval. Bundeep Singh Rangar, Founder and CEO of Fineqia, in an interview with BeInCrypto, highlighted the significant implications and challenges associated with Ethereum ETFs.

The market impact of an Ethereum ETF approval

Approval of Ethereum ETFs expected mirror the impact of Bitcoin ETFs, improving accessibility and legitimacy.

“The introduction of Ethereum ETFs would improve accessibility and legitimacy, attracting new investors seeking exposure to Ethereum without direct ownership,” Rangar noted.

This could lead to Ethereum price appreciation through increased demand and institutional participation. Additionally, Ethereum ETFs could drive adoption by traditional investors and integrate cryptocurrencies into traditional wallets, thereby driving broader market acceptance.

Learn more: Ethereum ETF explained: what it is and how it works

However, the SEC’s cautious approach reflects the crypto market’s regulatory challenges.

Recently, the SEC delayed BlackRock Request for Ethereum ETF, seeking public input on concerns about fraud and manipulation. The regulatory agency also questioned the classification of Ethereum following the transition to a Proof of Stake consensus mechanism (PoS), which he believes could address the Howey test criteria for security.

“This approach reflects the SEC’s commitment to investor protection and market integrity, underscoring the need for robust safeguards against the risks inherent in cryptocurrency markets,” noted Rangar.

Critical factors influencing the SEC’s decision include addressing market manipulation, fraud, and investor protection issues. The SEC’s deliberations signal a mature regulatory environment for cryptocurrencies, balancing innovation with prudent oversight to mitigate potential risks.

The likelihood of such approval appears slim

The successful launch of Bitcoin ETF sets a positive precedent, but ongoing concerns about market integrity remain a significant obstacle. Given Ethereum’s distinct features, such as its consensus mechanism enabling staking rewards, additional challenges must be addressed before receiving SEC approval.

“The likelihood of approval depends on demonstrating effective measures to mitigate these risks while demonstrating market maturity and transparency,” Rangar explained.

Nevertheless, market participants do not expect the approval of Ethereum ETFs in May. For example, Eric Balchunas, senior ETF analyst at Bloomberg. believes there is only a 25% chance that the SEC will approve this new financial product. In the meantime, a bet on the decentralized betting platform Polymarket stands at only 9%.

Ethereum ETF Approval Ratings. Source: Polymarket

These projections reflect important considerations related to the potential classification of Ethereum as a security. They further call into question many other digital assets using PoS as a consensus mechanism.

Interestingly, a Consensys spokesperson told BeInCrypto PoS does not affect Ethereum operations or an unsafe classification.

“If you look at Director Hinman’s speech in 2018, when he said Ethereum was not a security, he didn’t base it on PoW or PoS. The consensus mechanism is irrelevant,” said the Consensys spokesperson.

Learn more: Proof of Work and Proof of Stake Explained

Although Bitcoin’s consensus mechanism is almost unique, the approval of Ethereum spot ETFs could pave the way for many other cryptocurrencies to be used as underlying assets in new financial products. The fact remains that it is the SEC which will have the last word on this matter.

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