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May 19, 2024

Coinbase Research Says ‘Surprise to the Upside’ Possible for Ethereum ETF Decision – Here’s Why

By Alex Richardson

Research from Coinbase suggests that decisions on a spot Ethereum (ETH) exchange-traded fund (ETF) could surprise investors.

In a new note, Coinbase Institutional says that an ETH ETF is question of when, not if, and that the U.S. Securities and Exchange Commission (SEC) is likely looking at the decision with the same rationale that it did when approving the Bitcoin (BTC) ETFs earlier this year.


Coinbase notes that the SEC looked at the strong correlation between the price of spot BTC on the Chicago Mercantile Exchange (CME) – something that is also true for Ethereum.

“While there is uncertainty around a timely approval given the SEC’s apparent silence with issuers, we think that the existence of a US spot ETH ETF remains a question of when, not if. In fact, the primary rationale used to approve the spot BTC ETFs applies equally to spot ETH ETFs. That is, the correlation between the CME futures product and the spot exchange rates is sufficiently high such that ‘CME’s surveillance can be reasonably expected to detect… misconduct [in the spot market]’.

The period of correlation study in the spot BTC approval notice began in March 2021, one month after CME ETH futures launched. We think this evaluation period was deliberately chosen so that a similar reasoning could be applied to ETH markets. Indeed, correlation analysis previously presented by Coinbase and Grayscale suggests that the spot and futures correlation for ETH markets is similar to that for BTC.”

Coinbase says that despite the low odds of an Ethereum ETF being approved in May, markets could be in for an unexpected sign-off from the SEC.


“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. It is also worth noting that not all spot ETH ETF applications necessarily need to be approved at the same time. In fact, Commissioner Uyeda’s approval statement regarding the spot BTC ETF criticized the disguised “motivation for accelerating the approval of the applications, which is to prevent a first-mover advantage.”

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