The cryptocurrency market is increasingly optimistic that the US securities regulator may approve a spot ETF that directly invests in Ethereum, which is the second-largest coin after Bitcoin. Foreign media analysts expect that the US Securities and Exchange will announce news about spot Ethereum ETFs in the early hours of Friday morning.

According to a May 21 report, US Securities and Exchange officials on Monday unexpectedly requested NASDAQ and the Chicago Board Options Exchange (CBOE) to quickly update and revise their spot Ethereum ETF listing application documents. This is usually a request made before approval, suggesting that the agency may be preparing to approve the two companies' applications.

Currently, publishers such as VanEck have updated the 19B-4 documents, and most publishers have cancelled the relevant pledge clauses. Staking has always been a sensitive issue for Ethereum because it enables holders to reap benefits, which raises questions about whether the token should be considered a security regulated by the US Securities and Exchange.

The SEC is about to make a big decision!

The US Securities and Exchange must decide before this week whether to approve the Vaneck and Ark Investments and 21shares spot Ethereum ETF listing applications submitted by the CBOE. The transaction requires the US Securities and Exchange to approve its revised rules before the product can be listed, and the issuer still needs the SEC to approve the ETF registration statement before starting trading.

Unlike documents submitted by the exchange, the SEC does not have a fixed time frame for a decision, which means it may take several months before spot Ethereum ETFs can begin trading. There are also speculations that the US Securities and Exchange issued document update requests to all issuers at the same time, which may mean that several spot Ethereum ETFs are expected to be approved at the same time.

However, approval of these applications does not automatically open the door to new spot funds. People familiar with the matter said that this in no way guarantees a green light.

After deferring decisions on these fund applications over the past few months, the SEC will approve or reject VanEck's application before the May 23 deadline. VanEck is one of the issuers applying to the US Securities and Exchange.

According to some sources, there was a conversation between SEC staff and the issuer of a spot Ethereum ETF about the S-1 file. So far, they have come to the conclusion that “there is definitely work to be done” on these issues.

There's a critical question

The launch of spot Bitcoin ETFs in January of this year is considered a breakthrough because they actually hold Bitcoin and are widely welcomed by investors. Previously, investors could only invest in Bitcoin futures, a derivative contract to buy and sell an asset at a specific price in the future.

Based on key trading metrics such as traffic and trading volume, the launch of a spot Bitcoin ETF was considered a huge success. Bitcoin's price soared to its highest point in more than two years. In first place are BlackRock's iShares Bitcoin Trust Fund (IBIT) and Fidelity Smart Origin Bitcoin Fund (FBTC). They both broke through the $1 billion threshold in less than five days, and are the only two funds in the ETF sector that attracted more than $3 billion in the first 20 days of trading.

As for spot Ethereum ETFs, there is every reason to believe they will be popular with retail investors. Nearly 12 spot Bitcoin ETFs launched by companies such as Fidelity Investments and BlackRock have attracted nearly $13 billion in net inflows since their launch.

Although retail investors are the main buyers of Bitcoin, the latest 13F report shows that hedge funds, pension funds, and banks are also investing in spot Bitcoin ETFs. The most well-known buyers are hedge funds such as Millennium Management, as well as Steven Cohen (Steven Cohen)'s Point72 Asset Management Company and Elliott Investment Management. Millennium Management even holds at least four spot Bitcoin ETFs with a total value of about $2 billion.

As people are increasingly optimistic that the US SEC will approve at least one spot Ethereum ETFTF before the deadline, the price of Ethereum has risen by about 20% over the past three days.

However, staking has always been a hot issue for Ethereum because it allows holders to continue to receive benefits, which raises questions about whether the token should be considered a security within the competence of the SEC. Some market participants believe that if ETFs don't stake their Ethereum holdings, then these funds will be less attractive to investors than buying Ethereum directly in the cryptocurrency market.

Brian Rudick, a senior strategist at digital asset company GSR, said, “Holding Ethereum through an ETF will immediately incur opportunity costs due to forfeiting staking rewards.”

At the same time, however, many industry advocates believe that canceling ETF issuers' pledge plans is actually a good thing for the industry, as the industry aims to establish a decentralized financial system rather than relying on a few intermediaries.

Leo Mizuhara, founder of Hashnote, a decentralized financial institution asset management company, said, “Staked Ethereum becomes part of an ETF and could become a huge centralized force. For example, due to spot Bitcoin ETFs, the amount of bitcoins currently managed by Coinbase is very large, and similar things may also happen to Ethereum staking.”

However, some expect ETF issuers to eventually gain regulatory clarity to stake Ethereum. Ryan Watkins, co-founder of Syncracy Capital, said:

“I don't think this will last forever; as regulations become more clear over the next few years, these ETFs will eventually feature staking because the incentives are just too tempting.”

Be wary of buying news and selling factual quotes? Citi: Don't panic!

At a time when the US Securities and Exchange is about to make a final decision on the spot Ethereum ETF application, there is nothing investors want to understand more than whether Ethereum will reproduce the Bitcoin market when the spot Bitcoin ETF was approved. Bitcoin fell 17% after spot ETF was approved due to hype and leveraged bets.

According to a recent report by Citi, the bank believes that compared to Bitcoin, Ethereum seems less likely to “buy news and sell facts.” Because in comparison, spot Ethereum ETFs are less likely to be approved, the market positioning is less extreme.

According to Citi's data, interest rates on open Ethereum contracts and financing have declined compared to previous months. However, open positions have begun to rise, indicating that the market's expectations that ETFs may be approved are getting higher.

Additionally, Citi's historical data shows that net inflows from spot Bitcoin ETFs have had a significant impact on cryptocurrency returns. For example, as of May 20, the total net inflow of spot Bitcoin ETFs was $12.9 billion, which means that every $1 billion inflow will drive Bitcoin up about 6%. Assuming that Ethereum has a similar pattern, it is estimated that capital inflows could be between $3.8 billion and $4.5 billion, which could drive the price of Ethereum up by 23-28%.

However, several factors may influence these estimates, including the different market demand for Ethereum and Bitcoin, the rotation of existing ETF holders from Bitcoin to Ethereum, and the outflow of existing funds after the trust is converted to an ETF.

Citibank analysts said that in the long run, Bitcoin and Ethereum are expected to remain highly correlated, driven by macroeconomic factors. Despite differences in on-chain activity and potential use cases, such as Bitcoin's role as “digital gold” and Ethereum's smart contract capabilities, sentiment and further use case development remain critical for both cryptocurrencies. Citi concluded:

We expect major coins to remain highly correlated and continue to be driven by macro forces in the long term.

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