SEC unlikely to approve spot Ethereum ETFs 'any time soon,' says TD Cowen

The U.S. Securities and Exchange Commission is not expected to approve spot Ethereum ETH -4.29% exchange-traded funds in the near future, according to the investment bank TD Cowen. The initial deadline for approving such funds is in May.

"Our expectation is that the agency will not be approving ETPs for other crypto tokens any time soon as we believe the SEC will want to gain experience from Bitcoin BTC -2.35% ETPs before it approves an Ethereum or other crypto token ETP," wrote TD Cowen Washington Research Group, led by Jaret Seiberg, in a note earlier this week. "The wait might not be as long as 26 months, but it likely would be after the election."

The SEC approved spot bitcoin ETFs earlier this week after over a decade of rejections, and 26 months after greenlighting bitcoin futures ETFs in October 2021. The 2024 U.S. presidential elections are scheduled to be held in November.

After the spot bitcoin ETF approvals, traders are now betting that spot Ethereum ETFs could be next in line to receive the green light as the price of ether has surged over the past week. While some analysts are more optimistic that spot ETH ETFs will get approved, others, like those at JPMorgan, aren't betting big. "In our opinion, for the SEC to approve spot Ethereum ETFs in May, it would need to classify Ethereum as a commodity (similar to bitcoin) rather than a security," JPMorgan's Nikolaos Panigirtzoglou told The Block this week. "This is far from given, and I wouldn't put more than a 50% chance to the SEC classifying Ethereum as a commodity before May."

Several big firms, including BlackRock and Fidelity, have recently filed for spot ETH ETFs.

'Gensler is in no hurry to act'

While approving spot bitcoin ETFs, SEC Chair Gary Gensler said that a federal court gave the agency little choice but to approve those funds as the SEC had lost in a legal case brought against it by Grayscale Investments. "While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin," Gensler said at the time, adding that he maintains his view that "the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws."

TD Cowen said it views the spot bitcoin ETF approval as consistent with its thesis that Gensler is "taking a go-slow approach modeled over how the agency established rules for the ABS [asset-backed securities] market." The approval also "does not expedite the schedule for crypto market structure legislation," the bank said.

"This does not change our expectations for crypto market structure. We believe it will require Congress to enact legislation to establish the framework for how tokens will be regulated, what type of disclosures will be required and which agency will be in charge of investor protections," TD Cowen said. "Our view remains that Gensler sees enforcement actions and litigation as aiding that process by narrowing the issues that Congress must resolve."

Gensler's term ends in June 2026, and he could maintain a Democratic majority at the SEC until then, according to TD Cowen. "It is yet another reason we believe Gensler is in no hurry to act," the bank said, adding that he has time to bring more cases and await more court rulings rather than trying to rush legislative action.

"This also lets the U.S. learn from other jurisdictions before enacting a regulatory regime that will be tough to change once adopted," the bank concluded.