Bitcoin ETFs Are Resounding Success. Will SEC Approve Ether ETF Next?

After more than a decade of work to bring a Bitcoin ETF to the US, Securities and Exchange Commission Chairman Gary Gensler approved 11 spot bitcoin exchange-traded funds in January. The ETFs have been a resounding success, and Ethereum spot ETFs could come to market as early as May. 
The Bitcoin ETFs' big inflows have galvanized the industry. On average, Bitcoin ETFs received a net $125 million worth of bitcoin (BTC) every day for approximately one month. BlackRock’s IBIT, Fidelity’s FBTC, Bitwise Asset Management’s Bitcoin ETF (BITB), and Ark 21's ARKB each exceeded the $1 billion mark in assets under management. IBIT reached $6 billion in AUM and FBTC came in at about $4.3 billion.


Blackrock’s Bitcoin ETF fund now sits in the top five of al ETFs based on 2024 inflows, which places it on a similar levels with industry-leading indexing giants like the iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO).  

Mean while, thousands of bitcoin are being purchased despite the fact that only 900 bitcoins are mined in that span. With the forthcoming April Bitcoin halving event, that number will be decreased to just 450 bitcoins mined daily. 

A potential for a supply crunch is real, and only further exacerbated when you consider the fact that major wealth management platforms are not offering the products to their clients, because they operate under strict fiduciary standards and must adhere to a defined period of due diligence. They will soon enter the market. That means still more demand awaits Bitcoin ETFs as wealth managers wade into this novel and already succesful product. 

Will An Ether ETF Be Approved Next?

Whether or not the SEC will approve the spot ETFs remains to be seen. This move could of course cause a surge in Ether's liquidity and market capitalization, potentially stabilizing its price volatility. Furthermore, institutional investors, previously wary of direct cryptocurrency investments due to security concerns and regulatory uncertainties, may find an ETF to be a safer and more compliant vehicle for entering the space–and thus more palatable. Such developments could not only bolster confidence in Ethereum's long-term viability but also encourage further innovations and investments within the broader blockchain ecosystem.

The SEC has already approved Ethereum futures contracts, so it might be hard pressed arguing against Ether spot ETFs. Gensler has not explicitly stated whether the token is a security or commodity, though the previous approval of Ethereum futures ETFs implies they have the potential to be viewed as commodities futures. In the past, Gensler has stated that he sees Bitcoin as a commodity but the “vast majority” of crypto to be securities like stocks and bonds.

“I’ve been around finance for over 40 years in one way or another,” he said Tuesday. “I’ve never seen a field that’s so non-compliant.”
If crypto is generally ruled to be securities, the industry would then be subject to costly registration and reporting requirements. 
Other than potentially being ruled a security, ether suffers from a smaller base of support than Bitcoin, including less institutional support overall. Either way, legal precedent was set during the approval process of the spot bitcoin ETFs. This blueprint could lay the foundation for the approval.

The SEC can expect to be met with criticism and industry activism if they choose to deny a spot Ethereum ETF, and it could leave Chair Gensler with little other choice than to approve such a product. More than half a dozen companies including BlackRock and Fidelity, which together boast a combined $13.5 trillion assets under management, have each applied to launch an Ethereum spot ETF. 

The regulatory landscape has been particularly cautious when it comes to crypto, underscoring a fundamental tension between innovators seeking to expand cryptocurrency's accessibility through traditional investment vehicles. Regulators are tasked with promoting market stability and protecting investors from undue risk, and crypto remains a very young technology. 

Nonetheless, Ethereum is already in increasing use on Wall Street and Silicon Valley. Many firms and fintech companies are building applications on the smart contract platform, which helps to make the case for creating an ether spot ETF. The CME launched bitcoin futures in 2017 and followed that up with Ethereum futures in 2021, which could ultimately serve as a boon to spot ETF approval. Certainly, crypto has momentum in the wake of the Bitcoin approval and the successful rollout, and the SEC has familiarity with the space, making it fathomable that an Ethereum ETF could be approved as early as May.