Bloomberg analyst interview: SEC does not want to play the role of "kingmaker"; spot Ethereum ETF may be approved in May next year

Bloomberg ETF research analyst James Seyffart is well-known in the crypto community for predicting and following the progress of spot Bitcoin ETFs, and influenced by their views, most people believe that approval may be imminent.

While a guest on The Scoop podcast, Seyffart reiterated the window for potential spot Bitcoin: between January 8 and January 10, 2024.

Since October, Seyffart has been saying there is a 90% chance of approval by Jan. 10, the deadline for Ark and 21Shares to file for resolution, which first filed in April, ahead of financial giant BlackRock in June , a deadline that now includes 12 other companies in the field. The Securities and Exchange Commission has delayed its decision several times so far, but for the Ark and 21Shares ETFs, it must make a decision to approve or reject it by Jan. 10.

Seyffart believes the SEC has been engaging in “tactical” delays to schedule the various applications, or at least get approvals simultaneously, so as not to give an advantage to any one company alone – which is why Seyffart believes all approvals will come in January.

“But if the SEC were to overrule them at that point, then in some ways they would not be acting as a rational regulator,” he said.

The SEC doesn’t want to play the role of “kingmaker”

Seyffart said the SEC “doesn’t want to pick the most favored firm to win these competitions, whether it’s getting the most assets or getting the most liquidity. So if the SEC was going to approve all of these things, it would probably approve them all at once because it doesn’t want to play the role of kingmaker in this situation.”

When asked why, Seyffart said: "We heard complaints from different people, both those who were involved in the process and others who knew the stakeholders."

He added: "We have very reliable sources, but we also have some sources that we ca n't be sure of. But we've been hearing similar things from different people and different perspectives for over a year. But it's really important to try to get to the bottom of what's going on, look at the calendar, look at all the application dates and deadlines, and try to find any clues."

Seyffart went on to say that the prospect of mass approval is unusual compared to traditional ETF applications, where if a company is the first to apply and receive SEC approval, it gets to market its product first, but crypto-related products are a unique situation, with multiple Ethereum futures ETFs being approved simultaneously earlier this year.

The analysts said: “There have been a lot of moves by different players (for Ethereum futures ETFs). Especially Valkyrie , some other issuers have rushed, but the SEC has basically done its best to ensure that every applicant is approved on the same day. So this suggests to us that if the SEC were to approve it, the spot Bitcoin ETF would follow a similar trajectory.”

Grayscale’s Impact on Spot Bitcoin ETF Approval

Seyffart said Grayscale Investments’ August victory over the SEC in its application to convert its flagship product Grayscale Bitcoin Trust ( GBTC ) into a spot Bitcoin ETF was another major factor in the SEC’s likely approval.

“I think the SEC has been backed into a corner , with judges essentially overturning every decision and reasoning that they’ve used to deny ETFs in the past, and I think the SEC and Chairman Gary Gensler know that they’ve gone a little too far and are now kind of being forced into a corner,” he said.

He believes that Grayscale's case eliminates the need for a supervisory sharing agreement, similar to the one many applicants currently have with Coinbase . However, because this situation is unprecedented, there are no guidelines for response times or approval processes to follow. Seyffart noted that despite the ongoing meetings between Grayscale and the SEC, the situation is still unique.

He added: “So my point is, if there’s a company that’s not approved on day one, it’s probably going to be Grayscale.”

Ethereum Spot ETF May Take Longer

Despite the optimism surrounding the imminent approval of a spot bitcoin ETF, Seyffart said the prospect of a spot ethereum ETF is “a completely different ball game.”

Seyffart said he could almost guess how the SEC and Gensler would argue how special the Ethereum product is, noting that futures markets aren’t as robust or institutionalized as Bitcoin’s, and highlighting the differences between Bitcoin’s proof-of-work model and Ethereum’s proof-of-stake model .

He added that he disagrees with those views, but if the SEC wants to stop the process, it could delay a decision or assert that Ethereum is a security.

However, in Seyffart’s view, the SEC has implicitly accepted Ethereum as a commodity, noting that the final deadlines for resolutions for the Ark/21Shares and VanEck spot Ethereum ETFs are May 23 and May 24, so he believes it is “more likely” that the spot Ethereum ETF will eventually be approved before the end of May.

He said: " It doesn't mean they are automatically approved. But I do think that if a spot Bitcoin ETF is approved, it would be a 100% positive sign, a very positive sign that we might see a spot Ethereum ETF approved, but it's not a 90% chance of success, that's for sure . "

Potential timeline between approval and launch

The simple answer is that the timeline between the potential approval and launch of a spot Bitcoin ETF remains uncertain.

Seyffart noted that approval falls under the SEC’s Division of Trading and Markets’ 19b-4 process. But in order for an ETF to launch and begin trading, its S-1 prospectus, which provides details about the issuer’s business operations and finances, must first be approved by the SEC’s Division of Corporate Finance.

Seffart added that there have been multiple meetings between the SEC and issuers to address these issues, which leads him to believe that once the 19b-4 is approved, the S-1 signing could happen. Conversely, if the SEC is not ready, they may only provide 19b-4 approval and the listing will be delayed until the S-1 is approved, which could take days or weeks . However, he stressed that predicting an exact timeline is not certain.

Seyffart stressed that if these funds were to come to market, the cautious approach of mainstream brokerage firms and banks – characterised by rigorous due diligence processes and requirements for long track records – could slow their adoption, saying: “So not all advisors will immediately commit a few percent of their clients’ portfolios to them”.

People who buy the product right now are likely to be more oriented toward independent IRAs or independent advisors, with some of those funds simply transferring risk from the existing Grayscale Trust or international crypto ETF ecosystem. “That said, if anyone could add it quickly, it would probably be BlackRock because they have very good relationships with all of these types of platforms,” Seyffart said .

“Obviously I think they’ll see a lot of inflows on day one, I’d guess hundreds of millions of dollars,” Seyffart said . “Over the longer term, there’s no doubt billions of dollars will flow into these products – there’s a reason the largest asset managers in the world are trying to launch these products and compete.”