Spot Ethereum ETFs have taken an important step towards listing, which could lead to mainstream adoption of the world's second-most popular cryptocurrency.

The US Securities and Exchange Commission (SEC) has approved plans from the New York Stock Exchange, Chicago Board Options Exchange (Cboe), and Nasdaq for a spot Ethereum ETF.

The US Securities and Exchange Commission approved the 19b-4 document, but registration statements from issuers such as VanEck, Ark Invest, and other fund managers are still pending approval before the spot Ethereum ETF is listed.

Investment advisor and ETF Store president Nate Geraci said he believes the SEC will eventually approve the registration statement for spot Ethereum ETFs, but the agency will “slow down” the process.

Analysts said the SEC may approve the registration statement within two weeks at the earliest, but it may take at least a month or two to complete this work.

Notably, during the approval process, the SEC's position on spot Ethereum ETFs changed 180 degrees in a short period of time.

Crypto industry participants were originally pessimistic about the May approval for several months due to a lack of positive response from the SEC. However, on Monday, the agency asked major exchange operators Nasdaq, the Chicago Board Options Exchange, and the New York Stock Exchange to revise their applications to list spot Ethereum ETFs, indicating that regulators may be inclined to approve such products.

Quinn Thompson, founder and chief investment officer of digital asset hedge fund Lekker Capital, said the change shows that the political environment has become more friendly to the crypto industry as the US election approaches.

On Wednesday, the House of Representatives passed landmark cryptocurrency legislation, called FIT-21, which would establish a targeted disclosure and registration system for digital asset companies and place the primary responsibility for regulating the industry to the Commodity Futures Trading Commission (CFTC) rather than the SEC.

The bill won 71 Democratic votes, surpassed industry sources' expectations at the beginning of this week, and received almost unanimous support from the Republican Party.

The Biden administration's statement on the bill has also fueled hope that Democratic regulators will take a more moderate approach to the industry in the future.

While opposed to the FIT-21 bill, the Biden administration said it looked forward to working with Congress to develop customized cryptocurrency regulations, including “providing sufficient guarantees for consumers and investors while creating the conditions needed to innovate.”

Meanwhile, optimism surrounding the approval of a spot Ethereum ETF has boosted the token's price by about 28% over the past seven days, according to FactSet data. However, Thompson said that the continuation of the rally depends on whether the ETF has sufficient capital inflows.

Geraci said the potential demand for spot Ethereum ETFs is likely to be strong, but far less than the recently approved spot Bitcoin ETF.

“The potential Ethereum market is about one-third of Bitcoin's. I think there is reason to expect a similar situation for spot Ethereum ETFs — demand will be around one-third of spot Bitcoin ETFs,” he said.

Earlier this week, at the request of the SEC, several potential spot Ethereum ETF issuers amended their documents to state that the ETF would not stake (stake) their Ethereum holdings, which would prevent holders from continuing to reap profits. Ethereum staking refers to locking a certain amount of Ethereum in a wallet and participating in blockchain operations in exchange for rewards.

Castle Funds President and Chief Investment Officer Peter Eberle pointed out that spot Ethereum ETF de-staking may affect demand for such products because staking Ethereum generates additional revenue. According to data from the Ethereum Foundation, staking Ethereum currently has an annual return of around 3.5%.

“If someone were a long-term holder, the situation would be very different,” Eberle said. “Spot Bitcoin ETFs, on the other hand, don't have this disadvantage.”

Bitcoin uses a different consensus mechanism called proof-of-work (proof-of-work), where the blockchain is maintained by miners solving complex mathematical problems.

Eberle said he also doesn't think institutional investors will be in high demand for spot Ethereum ETFs. He pointed out that since the price of Ethereum and Bitcoin is still highly correlated, if institutional investors have invested in spot Bitcoin ETFs, then they don't have much incentive to allocate spot Ethereum ETFs.

Matt Ballensweig, head of BitGo's GO Network, said that cancellation of pledges on spot Ethereum ETFs may also lead to arbitrage transactions, and traders may stake Ethereum and short the ETF at the same time.

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