Bitcoin ETFs have been a runaway hit. Will we see an Ethereum ETF before long?

Barely two months since their approval, spot Bitcoin ETFs have proved massively popular, with over $11.8 billion flowing into the so-called “Newborn Nine,” including a record $1 billion on Tuesday.

Largely as a result, Bitcoin’s price has shot up almost 60% this year, reaching an all-time high near $72,000, and Ether has climbed at roughly the same rate, to around $4,000. Part of the latter’s gains may be attributed to anticipation over the Securities and Exchange Commission’s final deadline to respond to the first spot Ether ETF application, issued by VanEck, on May 23.

Given the success of the new Bitcoin investment vehicles, how might the SEC rule on similar products tied to crypto’s second-biggest blockchain, and what should markets expect? Well, it depends whom you ask.

‘A pretty vanilla approval’

In theory, an approval “should be easy,” Bitwise CIO Matt Hougan told Fortune, as SEC Chair Gary Gensler approved spot Bitcoin ETFs after the existence of Bitcoin futures ETFs, and the latter already exist for Ether.

“You’ll see a pretty vanilla approval, and if it’s a denial, it would need to be some new reason that people can’t think of,” Vance Spencer, co-founder of Framework Ventures, told Fortune.

Both Spencer and Aurielle Barthere, a research analyst at Nansen, pointed out that big names could help soothe regulators’ concerns as they did with Bitcoin. Someone like BlackRock CEO Larry Fink could help sway Gensler by citing his near-perfect ETF track record. “This is a very powerful man,” added Spencer.

But while hopefuls point to the approval of spot Bitcoin ETFs on Jan. 11 as precedent, others are convinced Ether’s path could be more arduous: After all, it did take the SEC nearly a decade to come around on the spot Bitcoin vehicles.

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For starters, some of the issuers, including Ark and Franklin Templeton, have contemplated staking Ether in their applications, which would be “a significant complication,” Hougan noted.

Staking involves locking Ether tokens into the blockchain to help validate transactions and earn additional yields, part of a proof-of-stake mechanism. The latest reward rate is 4.17%, according to Staking Rewards. When a validator stakes tokens, it signifies a commitment to the network’s security. But Gensler voiced concern last March that digital assets using staking protocols could be considered securities under federal law.

And then there’s concern ETF inflows would put more staked tokens in the hands of just a few providers. S&P Global analyst Andrew O’Neill told Bloomberg last month this “could become large enough to change validator concentrations” in the network, exposing it to operational risks associated with centralization, such as outages from a single point of failure or market manipulation.

But Hougan dismisses these fears: “I don’t think it’s a big deal.” Indeed, staked Ether only represents a quarter of total coins, and while Bitcoin spot ETFs are booming, their assets under management are a drop in the ocean compared to the currency’s market cap.

Matteo Greco, a crypto analyst at Fineqia International, adds that the same argument could be applied to the 11 publicly traded U.S. Bitcoin miners that dominate the network’s hashrate. He ultimately sees some level of centralization as a trade-off for the market reaching mainstream popularity: “You can’t maintain full decentralization and reach billions of people.”

‘A major roadblock’

And then there’s the question of Ether’s legal status. While declaring more than a dozen other popular coins to be securities, the SEC has so far flip-flopped on Ether. In 2018, Gensler was filmed telling hedge funds it’s not a security, but then avoided taking a position at a congressional hearing last year. That ambiguity could be “a major roadblock” that adds “complexity” to the process, notes Jag Kooner, head of derivatives at Bitfinex.

Another potential obstacle could be the relative youth of the Ether futures ETF—October 2023 vs. April 2021—compared with those for Bitcoin. Ether is also less liquid, Greco adds, and its market cap is only about one-third of Bitcoin’s. More liquidity generally means less of a spread and more consumer protections—if a futures market lacks liquidity, it could create a significant divergence between spot and futures prices.

Lastly, there is political pressure. Gensler may want to align with the anti-crypto stances of some elected officials—or those seeking election—instead of “rolling over,” noted Jake Chervinsky, chief legal counsel at Variant Fund. And on Friday, in a letter from Sens. Jack Reed (D-R.I.) and Laphonza Butler (D-Calif.) to Gensler, they called on the SEC to halt the approval of additional crypto ETFs, expressing concerns over smaller cryptocurrencies being susceptible to “pump-and-dump” schemes that could pose “enormous risks” for retail investors.

When will we know—and what’s next?

Spencer predicts there’s a 60% to 70% chance of a May approval. Nansen’s Barthere agrees, adding it’s “rather likely,” citing the token’s absence from recent SEC lawsuits against top exchanges Binance and Coinbase.

But while Hougan took a more cautious approach, he did say it’s 75% likely to happen by year’s end.

Chervinsky, on the other hand, says 2024 isn’t likely for such an approval. The SEC doesn’t appear to be working out the necessary details, and if the agency stays mostly quiet in the buildup to May 23, “that silence will speak volumes,” he adds.

If approved, many experts predict Ether could shatter its all-time-high of $4,878, reached in November 2021, just as Bitcoin skyrocketed after the spot ETFs got a green light. But, Hougan notes, it’s less likely inflows to Ether-based products will match their Bitcoin brethren.

“Many traditional investors just want exposure to crypto,” he said, “and it will take some time to differentiate between the different public blockchains.”

This story was originally featured on Fortune.com