The first deadline set by the U.S. Securities and Exchange Commission (SEC) for a spot Ether ETF falls on May 23.
Its approval would be a significant event not only for investors, but it could also represent a significant change in the current status quo of U.S. cryptocurrency regulation. Many in the crypto community did not expect the SEC to approve an Ether spot 
ETH/USD FNB.
But reports that the SEC is requiring updates from applicants and changes to filings by U.S. asset managers indicate that a spot Ether ETF could ultimately be approved.
Sebastian Heine, head of risk and compliance at institutional staking partner Northstake, told Cointelegraph how an Ether spot ETF would be “a game changer for the entire crypto ecosystem and traditional financial sectors.”
ETF analysts Eric Balchunas and James Seyffart believe the SEC could reverse course on an Ether ETF, even if it becomes an “increasingly political issue.”
What are the expected effects if the Ether spot ETF is approved?
Will Ether ETFs increase the price of ETH?
There is a widespread belief among crypto investors that the price of ETH will increase thanks to spot Ether ETFs, as this will open the door to a new influx of money from investors in traditional markets. Heine said:
“The approval of an ETH ETF would not only be bullish for Ethereum but for the entire cryptocurrency market, especially in the United States, which holds the largest pool of capital in the world.”
The price of Ether, which jumped more than 20% the day before the ETF deadline, “demonstrates the significant amount of money waiting in the wings, ready to step in at any moment,” Heine noted..
Solo Ceesay, a former securitization investment banker at Citi Bank, told Cointelegraph that he believes ETH’s sudden surge “understates” the potential inflows Ethereum could receive, as large sums of money have yet to enter the ETH market.
Ceesay explained that the potential is significant because an “ETF allows deep pockets that were previously not allowed to invest in the asset to now get in the game.”
But there could be a potential pushback. Basel Ismail, CEO of investment analytics firm Blockcircle, told Cointelegraph that “the ETH ETF that is currently being approved is not yet properly priced.”
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Ismail predicts a “short-lived” pullback similar to the one that followed the approval of Bitcoin ETFs.
Peter M. Moricz, head of bridge partnerships at DLC.Link and a former derivatives trader, told Cointelegraph that when the approval of the ETH spot ETF is announced, it will be followed by a buy-the-rumor, sell-the-news event.
Nick Cowan, CEO of fintech firm Valereum, admitted that there could be a pullback. He told Cointelegraph that “moves with such high volume are often followed by a sideways move or a reversal followed by a sell-off on the news.”
Cowan described how “retail buyers will rush into stocks (FOMO), giving large institutional holders a chance to dump their holdings.” He said large investors need big news to change their large positions.
“The challenge remains determining the ability of retailers to maintain price levels once the fear of missing out disappears.”
Ismail said that the Grayscale Ethereum Trust (ETHE) “still controls (over) $10 billion worth of ETH.”
As with spot Bitcoin ETFs, Grayscale’s “management fees are extreme” and it expects ETHE to provide “significant outflow for some time until their fees are reduced to be competitive with alternative options in the market.”
Ceesay agrees with Ismail that the market “will definitely see a sharper pullback to the downside.”
However, he believes that inflows into ETFs will have a bullish effect on ETH price, similar to how BlackRock’s Bitcoin (BTC) ETF provided enough demand to push Bitcoin to new all-time highs.
Moricz said that “institutional money will flow more slowly into the ETH spot ETF than the BTC spot ETF,” primarily due to institutional investors’ perception of Ethereum.
Manuel Villegas, a digital asset specialist at private bank Julius Baer, told Cointelegraph that “Ethereum’s value proposition is certainly different from Bitcoin’s.”
Villegas explained how Bitcoin “has quickly found its place in a portfolio context for institutional investors, whether as a yield enhancement tool, a store of value, or as an alternative asset with diversification potential.”
But as Moricz noted, “ETH is more complicated to describe because there are so many other use cases.”
For Ethereum to receive consistent inflows from a spot Ether ETF, its regulatory classification needs to become clearer so that institutional investors feel more comfortable investing in it.
Ether ETF Approval Could Mark Shift in U.S. Regulation
No decision is made in a vacuum.
Cryptocurrency lawyer Jake Chervinsky said the policy is driven by politics and noted that cryptocurrency has won the political battle in recent months.
Moricz said a recent Senate vote to overturn an SEC banking rule — one that many feared would stifle cryptocurrency innovation — “might have helped shift sentiment in favor of faster approval of the ETH spot ETF.”
Former President Donald Trump’s sudden shift in stance on crypto and open criticism of President Joe Biden and SEC Chairman Gary Gensler’s approach to crypto may also sway the regulator.
Ceesay believes that Trump’s support for the cryptocurrency industry could force “the SEC’s grip on the asset class to loosen.”
There are indications that the SEC may seek to classify Ether as a security, whereas in previous litigation the Commodity Futures Trading Commission (CFTC) classified it as a commodity.
This inconsistent classification by U.S. regulators has led to interagency conflicts over jurisdiction and made it difficult for companies to expand, the argument goes.
For compliance officer Heine, “this approval would mean a radical change in the regulation of cryptocurrencies, underlining a move towards acceptance and integration.”
The SEC is the regulator responsible for approving spot Ether ETFs. Therefore, Heine believes that approval “would mark a significant shift in their stance, potentially signaling the end of the current destructive strategy of regulation through enforcement.”
What’s next after Spot Ether ETFs are approved?
Cryptocurrency markets tend to be driven by the anticipation of an upcoming event. So when or if Ether spot ETFs are approved, what happens next?
Some participants in the cryptocurrency markets, such as decentralized finance investor Cyril, who runs the Telegram channel Wealth Craft, have said that markets may not have a subsequent event to look forward to.
Conversely, Ismail believes that the approval of the Spot Ether ETF could bring new events with “multiple key beneficiaries.”
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According to him, “the floodgates will open again to competing and complementary Layer 1 and 2 and side chains, which will then trickle down to more speculative alts.”
For Ismail, there could also be future crypto ETFs that include assets found in Grayscale’s existing pseudo-ETFs. He said the sector could see ETF products with XRP (XRP), Cardano (ADA), Polkadot (DOT) and more.