Ethereum Spikes 9% Within Minutes on ETF Approval Rumors

The price of Ethereum spiked by 9% in a matter of minutes Monday afternoon amid speculation from analysts that the United States Securities and Exchange Commission will indeed approve spot Ethereum exchange traded funds (ETFs).

Ethereum jumped from a price of $3,143 to $3,428 in a span of approximately 20 minutes, per data from CoinGecko. Its 24-hour jump sits at 11% as of this writing, based on the current price of $3,410.

Bloomberg analysts Eric Balchunas and James Seyffart now say they're 75% sure that the SEC will approve applications starting this week, following a previously bearish streak that saw them estimate the chances at 25%.

"Hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone [is] scrambling (like us, everyone else assumed they'd be denied)," Balchunas tweeted.

Prior to Monday, analysts had pinned their pessimistic outlooks on a lack of meaningful engagement between the SEC and nine asset managers that had filed applications for spot Ethereum ETFs, including BlackRock, Fidelity, and Ark Invest/21 Shares.

The Wall Street Journal reported that the SEC asked the asset managers on Monday to submit amended 19b-4 forms in the days ahead, fueling speculation that the agency indeed plans on taking action towards potential approval of spot Ethereum ETFs.

Filing with the regulator last year, VanEck expects a decision on its application by Thursday. The next day, the agency will be due to respond to an application from Ark Invest/21 Shares, which removed language regarding the staking of the ETF’s funds earlier this month.

Even though the SEC could approve so-called exchange rule changes that give an exchange, such as the Nasdaq, permission to list a spot Ethereum ETFs, each asset manager would need its registration statement approved for the ETFs to launch, said investment advisor and ETF Store President Nate Geraci on Twitter.

The process through which Ethereum tokens are delegated to the network in exchange for rewards has come under fire in lawsuits brought by the SEC. The agency has alleged that some companies, such as Coinbase, are in violation of securities laws by offering staking services to customers because they allegedly resemble securities as so-called investment contracts.

That said, Coinbase denies that its staking services are a securities offering. Still, the Ethereum software giant Consensys claimed that staking is core to the SEC’s internal view that Ethereum is a security, as alleged in a lawsuit filed by the company against the SEC last month. (Disclosure: Consensys is one of 22 investors in Decrypt).

As Ethereum surged Monday, momentum shifted instantly on the blockchain-based betting site Polymarket. Skyrocketing from a 13% chance the day before, traders penciled in a more than 50% chance that spot Ethereum ETFs would be approved by month’s end, as of this writing. 

However, the figure was below a 76% chance traders foresaw in January amid the launch of spot Bitcoin ETFs. But optimism towards the potential approval of spot Ethereum ETFs was reflected in existing products that already offer exposure to Ethereum’s spot price.

Shares in Grayscale’s Ethereum Trust (ETHE), for example, traded at a 20.5% discount relative to the funds’ crypto holdings, according to data from YCharts. Tightening over the past month-plus, the discount had widened as far as 26% in April after narrowing to 8% in March.

ETHE’s discount stems from the product’s structure as a closed-end fund, where shares can’t be redeemed by financial-market participants to keep its price in line with Ethereum’s. A similar discount that plagued Grayscale’s Bitcoin Trust evaporated after the product was uplisted into a full-fledged ETF in January.

The SEC has recently faced bipartisan pressure over a crypto-custody rule that lawmakers voted to erase last week. Sitting on President Biden’s desk, the measure received support from high-ranking democrats, such as Senate Majority Leader Chuck Schumer (D-NY).

Compared to anti-crypto politicians like Elizabeth Warren (D-MA), the move to correct the SEC’s policy represented a break. It followed an event hosted by former President Donald Trump, where he slammed the SEC’s toughness on crypto and vowed to support the industry in front of holders of his NFT collection at Mar-a-Largo.

Editor's note: This story was updated with additional details after publication.