Will indication of SEC approval for Ethereum futures ETFs herald further pain?

The U.S. Securities and Exchange Commission (SEC) will approve the first exchange-traded funds (ETFs) based on Ethereum futures, according to an Aug. 18 Bloomberg report.

The regulatory green light could pave the way for several companies, including Volatility Shares, Bitwise, Roundhill and ProShares, which have applied to launch ETFs based on ETH futures.

If approved, the approval could be seen as a “victory” for the crypto industry, so let’s take a look at the crypto ETF landscape and examine the potential impact.

The SEC has so far been hesitant to allow ETFs directly based on cryptocurrencies. However, this trend changed in late 2021 when trading of a fund of Bitcoin futures contracts began on the Chicago Mercantile Exchange. As a result, there has been speculation in the market about the possibility of an Ethereum futures product being next on the approval line.

The SEC has been slow to approve a derivatives product in the second-largest cryptocurrency as the regulator continues to raise concerns about the potential manipulation of cryptocurrency prices and the possibility of insufficient liquidity.

The Crypto ETF Landscape.

In related news, Grayscale Investments LLC, a leading US crypto asset manager, is awaiting the SEC’s decision on its application to convert its Bitcoin trust into an ETF. As reported Aug. 17, Grayscale has suggested it wants to expand its ETF team, indicating the firm’s readiness to move forward, subject to the SEC’s decision.

In another development, Valkyrie Investments also filed for an Ethereum futures ETF on August 16. Substantially all of the fund’s assets will be invested in exchange traded Ethereum futures with a small portion allocated to collateral investments such as cash, cash-like instruments or high quality securities.

Galaxy Digital CEO Mike Novogratz, citing insider contacts at BlackRock and Invesco, expressed his optimism that the regulatory approval of a spot Bitcoin ETF is a “matter of when not if.” Institutional players, he added, are optimistic that the SEC will give spot Bitcoin ETFs the green light within the next four to six months.

As the crypto industry awaits these critical decisions, the potential approval of ETHfutures ETFs heralds a new era of adoption and integration of cryptocurrencies into mainstream financial products.

Impact of crypto futures ETFs.

Interestingly, the first Bitcoin ETF to launch in 2021, BITO, went live close to the top of the bull market. The chart below shows the correlation between the price of Bitcoin (blue) and BITO (orange). Furthermore, the correlation coefficient indicator below (red) identifies periods when BITO and BTC prices diverged.

Those who expect an Ethereum Futures ETF to send a bullish signal can refer to this chart for historical data on the impact of past crypto futures events. While past performance is never fully indicative of future price movements, the chart provides a warning sign for investors.