Bitwise Defies Market Doubts, Files for Ethereum Spot ETF

Despite a declining approval rate for spot Ethereum ETFs, which experts predict has fallen to 30% in May, asset management firm Bitwise has filed with the SEC to launch an Ethereum spot ETF.

Bitwise Files for Ethereum Spot ETF Despite Waning May Approval Odds

In a move defying subdued market expectations, asset management firm Bitwise has submitted a registration statement with the Securities and Exchange Commission (SEC) for a physically-backed Ethereum (ETH) spot exchange-traded fund (ETF). The filing, Form S-1, was made public on March 28, 2024.

This development comes on the heels of recent, more pessimistic predictions regarding the likelihood of an Ethereum spot ETF approval in May 2024. Bitwise's Chief Investment Officer, Matt Hougan, had earlier suggested that the probability of approval stood at a mere 30%.

Similarly, industry experts have been tempering their initial optimism. Bloomberg senior ETF analyst Eric Balchunas initially predicted a 70% approval chance, which was later revised down to 35%. GSR Markets, an algorithmic market maker, assigned the probability a low 20%.

These diminished expectations stem from the SEC's pattern of delaying approvals for Ethereum spot ETF applications submitted by industry giants like BlackRock and Fidelity. Most recently, on March 20, 2024, the SEC launched a formal inquiry into the classification of Ethereum as a security, signaling a heightened level of scrutiny for Proof-of-Stake assets.

Even in the case of the recently approved Bitcoin spot ETF, the SEC maintained its non-committal stance on cryptocurrencies, deeming only Bitcoin a commodity while leaving the status of other coins in the gray area of possible securities.

Legal scholars argue that applying the Howey Test—a framework the SEC employs to determine whether an investment contract qualifies as a security—to Ethereum yields an inconclusive result, undermining the assertion that Ethereum is a security.

Currently, ETH is trading around $3,550, a decline of approximately $500 since the Shanghai upgrade. This market action reflects the ongoing uncertainty surrounding regulatory developments.

Implications and Outlook

The Bitwise Ethereum Spot ETF filing sends a clear message that the asset management industry remains bullish on Ethereum, despite the regulatory headwinds. The company's decision to proceed with the application suggests a belief that the SEC's stance may soften in the future.

However, the SEC's recent actions and statements indicate that the path to an Ethereum spot ETF approval is far from straightforward. The agency's focus on Ethereum's classification as a security raises concerns about its willingness to approve spot ETFs for other cryptocurrencies.

Market participants should closely monitor the SEC's ongoing inquiry into Ethereum's status and any related developments. The agency's final determination will have significant implications for the growth and adoption of Ethereum and the broader digital asset ecosystem.