Why did the US SEC reverse its stance on the Ethereum spot ETF? What will happen next?

Author: Jacob, web3 developer; Translation: Jinse Finance xiaozou

On May 20, the US SEC began to inform funds to speed up the update of 19b-4 documents, indicating that the chances of spot Ethereum ETFs being approved have increased. What does this mean?

On May 20, it was reported that the US Securities and Exchange Commission asked exchanges to speed up the update of 19B-4 documents on spot ETH ETFs. The move has fueled speculation that the SEC has taken a more favorable stance toward ETF applications ahead of Thursday’s approval deadline.

While it’s not a done deal, Bloomberg ETF analysts Eric Balchunas and James Seyffart raised the odds of an ETH ETF being approved from 25% to 75%.

What is the reason? It is the dual pressure of politics and economy. This year is an election year, and the market demand for alternative assets such as cryptocurrencies is growing (see BTC ETF), which will become a positive catalyst for the cryptocurrency market. The prediction markets (usually a bellwether of outcomes) reacted violently to the news: after a harrowing trend from 75% pass rate in January to 0% we were back to 66% pass rate in just one hour.

Most of the market did not expect this given the SEC’s aggressive stance on cryptocurrencies, especially ETH. Although the SEC itself calls ETH a commodity, a few like SEC Chairman Gary Gensler have been calling it a security (given concerns about collateralization).

Not to mention Senator Elizabeth Warren's outspoken stance on cryptocurrency. Recently, Trump (in typical partisan style, of course) has tended to accept cryptocurrency (despite his past remarks that it was not the case), citing the good performance of his NFT series collections.

So, what does this mean? What should we do next?

The last time we saw something like this was when the Bitcoin ETF was approved in January 2024, which led to a steady rise in the price of Bitcoin from $30,000 in November 23 to $46,000 in January.

This price trend usually marks that mainstream finance accepts BTC/ETH as an asset class that the market wants to participate in, allowing the public to access the underlying cryptocurrency. Bringing a lot of verification needs to the industry.

If demand for a spot ETF is strong, the ETF must buy the underlying currency, unlocking exposure to that asset for a large group of investors who are not typical crypto people, crypto-savvy funds, family offices, or speculators. ETFs are regulated, so they are "safer".

This is boring capital, orders of magnitude larger than the crypto capital we see today. These large pension/endowment funds have a lot of money (even 0.5% to 1% of funds flowing into crypto is quite significant for the crypto industry). This is a good development considering the sideways price action over the last month and the debate over the demise of ETH.

Capital entering ETFs generally does not care about ETH's consistency, re-pledge yield, decentralization, scale, low floating and high FDV debates. They do not conduct on-chain transactions, nor do they seek degen returns, nor do they trade meme coins. But overall, they are definitely conducive to capital inflows and gaining attention.