Coinbase Research Anticipates Positive Surprise for Ethereum ETF Decision – Here’s Why

• Coinbase believes the approval of an ETH ETF is inevitable, comparing the situation to the SEC’s approval of Bitcoin ETFs earlier this year, and estimates a 30-40% chance of approval by May 31, 2024.
• The approval of spot Ethereum ETFs requires the SEC to greenlight both the 19b-4 filings and the S-1 registration forms.

While the Ethereum price has been trading under pressure for the past few weeks at around $3,000 levels, the latest report from Coinbase says that an upside surprise is soon in the making for Ethereum investors. This surprise could come against the backdrop of decisions around the spot Ethereum ETFs, ahead of this week, per the Crypto News Flash report.

In a recent note, Coinbase Institutional asserts that the approval of an ETH ETF is a matter of when not if. They believe the U.S. Securities and Exchange Commission (SEC) is likely approaching the decision with the same rationale used for approving Bitcoin (BTC) ETFs earlier this year.

Coinbase highlights that the SEC considered the strong correlation between the price of spot BTC on the Chicago Mercantile Exchange (CME), which also holds true for Ethereum. The crypto exchange added:

We think there is room for surprise to the upside on this decision. Polymarket is pricing in odds of a May 31, 2024 approval at 16%, and the Grayscale Ethereum Trust (ETHE) is trading at a 24% discount to net asset value (NAV). We believe the odds of approval are closer to 30-40%.

As crypto begins to take form as an election issue, it’s also less certain in our view that the SEC would be willing to front the political capital necessary to support a denial. Even if the first deadline on May 23, 2024 encounters a rejection, we think there is a high likelihood that litigation could reverse that decision.

SEC’s Nod for Spot Ethereum ETF Approval

The spot Ethereum ETF will directly hold Ether as its underlying asset and trade on stock exchanges similar to stocks. To do this, they must receive SEC approval for both the 19b-4 filings and the S-1 registration forms.

The SEC must approve both these filings to legally sell the ETFs to the public. Typically, the SEC has a statutory timeframe of 45 days, extendable up to 240 days, to make an initial decision on the 19b-4 filings. Approval of the 19b-4s allows the ETFs to be listed on exchanges. However, without the approval of the S-1s, the ETFs cannot be legally sold to investors, per the Crypto News Flash report.

Even if the U.S. SEC approves the 19b-4s, it might delay the approval of the S-1s, taking extra time to review these documents. The lack of engagement between the issuers and the SEC suggests that the regulator could adopt a more cautious approach due to the complexities and risks associated with crypto products.

On the other hand, the Ethereum whales have triggered massive deposits of ETH onto the exchanges. On-chain data provider SpotonChain reported that a large whale, 0x7f1, deposited 15,000 ETH (worth $45.98 million) to Kraken at $3,065 per ETH four hours ago. This whale had previously withdrawn 120,874 ETH from Kraken at around $1,645 per ETH in early September 2022. Currently, the whale still holds 105,874 ETH (valued at $326 million), with a total profit of $173 million (+87%).

Giant whale 0x7f1 deposited 15,000 $ETH (45.98M) to #Kraken at $3,065 4 hours ago.

The whale withdrew 120,874 $ETH from #Kraken at only ~$1,645 in early Sep 2022,

And now still holds 105,874 $ETH ($326M) with a total profit of $173M (+87%)!

Follow @spotonchain and set alerts… pic.twitter.com/3wsgjQd4DI

— Spot On Chain (@spotonchain) May 20, 2024