On May 20 as ether (ETH), the second-largest digital asset by market capitalization, experienced a significant surge of around 17%.
This price jump, which saw ether climb to over $3,600, was fueled by favorable regulatory developments that increased the likelihood of an ether exchange-traded fund (ETF) being approved by the U.S. Securities and Exchange Commission (SEC).
TLDR
- Ether (ETH) surged by around 17%, reaching over $3,600, following favorable regulatory developments that increased the likelihood of an ether exchange-traded fund (ETF) being approved by the U.S. Securities and Exchange Commission (SEC).
- The SEC has asked exchanges to update their 19b-4 filings for ether ETFs, suggesting potential progress toward spot Ether ETF approvals, though approval is not guaranteed.
- Polymarket contracts predicting the approval of an ether ETF by May 31 and June 30 saw their prices surge, indicating increased market confidence in the ETF’s approval.
- The surge in ether’s price led to $114.47 million worth of ether being liquidated, with $84.5 million in short positions liquidated.
- Analysts have raised their odds of an ether ETF being approved, with some citing potential political pressure on the SEC as a factor, while others note that the final decision on the ETF’s registration (S-1) is still pending.
According to reports, the SEC has made an abrupt move toward approving a spot ether ETF by asking exchanges to update their 19b-4 filings for ether ETFs.
These 19b-4 filings propose rule changes, and the SEC’s request to update them suggests potential progress in the approval process for spot ether ETFs.
However, it is crucial to note that despite this development, the SEC could still reject the S-1 registration statement of the ether ETF, delaying its approval and trading commencement.
The S-1 registration statement is a crucial document that provides detailed information about the proposed ETF, including its investment objectives, risks, and other essential details.
The surge in ether’s price also had a significant impact on the derivatives market.
As reported, the ether implied volatility curve, which shows market expectations of future volatility across different strike prices and expirations, flattened as traders heavily bought $4000 calls for May 24 and May 31 expiries.
Additionally, 25-delta risk reversals hit year-to-date highs above 18%, indicating increased demand for call options relative to put options.
The potential approval of an ether ETF has also caught the attention of traders on the Polymarket platform, where contracts predicting the likelihood of an ether ETF being approved saw their prices surge.
A Polymarket contract asking if an ether ETF would be approved by May 31 jumped from 10 cents to 55 cents, representing a 55% chance of approval by that date. Another contract asking if the ETF would be approved by June 30 is currently trading at 68%.
The ether price surge was not without its consequences, as it led to $114.47 million worth of ether being liquidated.
According to data from Coinglass, $84.5 million in short positions were liquidated, while $29.98 million in long positions were also liquidated.
Update: @JSeyff and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they'd be denied). See… https://t.co/gcxgYHz3om
— Eric Balchunas (@EricBalchunas) May 20, 2024
The excitement surrounding the potential approval of an ether ETF has also led to analysts adjusting their predictions. Eric Balchunas, a senior analyst at Bloomberg, raised his odds of an ether ETF being approved from 25% to 75%.
Balchunas cited potential political pressure on the SEC as a factor behind the agency’s quickening pace in approving the ETF, noting that their previous stance demonstrated little involvement with ETF applicants.
However, not all analysts share the same level of optimism. Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, noted that the final decision on the registration requirement for individual funds (S-1) is still pending.
Geraci stated that the SEC could accept the exchange rule amendments (19b-4s) independently from the fund’s registration (S-1), potentially delaying the approval process beyond the deadline for VanEck’s Ethereum spot ETF request on May 23.
The SEC has been closely scrutinizing ether’s status as a potential security, opening a formal investigation after the Ethereum network switched from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) mechanism. If the SEC determines that ether is a security, it may reject the spot ether ETF applications.
Analysts at QCP Capital believe that the “resounding lack of interest” in the market, combined with the approval of a spot Ethereum ETF, might provoke a short squeeze, which could “easily” return ETH to its recent highs of $4,066, reached on March 12, according to data from CoinMarketCap.
