IMPORTANT POINTS:
- Ethereum ETF Approval: Coinbase suggests an Ethereum ETF is a matter of when, not if.
- Strong Correlation with CME Futures: The SEC could approve the ETH ETF due to the high correlation with CME futures, similar to Bitcoin.
- Potential Surprise in May 2024: There is significant room for a positive surprise with the approval of the Ethereum ETF in May 2024.
Recent research from Coinbase suggests that the approval of an Ethereum (ETH) exchange-traded fund (ETF) could surprise investors. In a briefing note, Coinbase Institutional highlights that the question is not if, but when, an ETH ETF will be approved. The US Securities and Exchange Commission (SEC) is likely considering the decision with similar reasoning to that used to approve Bitcoin (BTC) ETFs earlier this year.
Similar Reasoning for Bitcoin and Ethereum ETF Approval
Coinbase notes that the SEC evaluated the strong correlation between the BTC spot price on the Chicago Mercantile Exchange (CME), a factor also applicable to Ethereum.
“While there is uncertainty about a timely approval due to the SEC’s apparent silence with issuers, we believe the existence of a US spot ETH ETF remains a question of when, not if. In fact, the main reasoning used to approve BTC spot ETFs applies equally to ETH spot ETFs. That is, the correlation between CME’s futures product and spot exchange rates is high enough that ‘CME’s surveillance could reasonably be expected to detect…misconduct [in the spot market].”
They also added that:
“The correlation study period in the BTC spot approval notice began in March 2021, one month after the launch of ETH futures on CME. We believe that this evaluation period was deliberately chosen so that similar reasoning could be applied to the ETH markets. In fact, correlation analysis previously presented by Coinbase and Grayscale suggests that the correlation between the spot market and ETH futures is similar to that of BTC.”
Possibility of a Surprising Approval
Despite the low odds of a May approval, Coinbase indicates the market could be primed for a positive surprise from the SEC.
