Market Overly Bearish on ETH ETF Odds: Coinbase Institutional

The ETH/BTC ratio may have just set a new multi-year low amid depressed sentiment on the odds of spot ETH ETF approval next Thursday, but Coinbase Institutional believes that Ether has the potential to surprise to the upside in the second half of 2024!

What’s the scoop?

• Underpriced Approval Odds: While the Polymarket implied odds of ETF approval currently stand at just 10%, Coinbase Institutional sees a 30-40% chance of approval considering crypto has increasingly become an election topic. The Biden Administration’s SEC may be unwilling to expend political capital on a denial.
• Layer 2 Boon: Leading L2s now constitute 17% of aggregate DEX volumes, and are acting as massive ETH sinks, helping drive demand for ETH as a monetary asset, meanwhile Arbitrum and Base have seen explosive growth in stablecoin supply.
• Staker Support: ETH has been inflationary for over a month, but the growth in staked ETH has vastly outpaced the rate of issuance and stakers are not structurally forced to sell ETH to support operations, like BTC miners.
• Ethereum’s Edge: Ether’s usage across Ethereum-native DeFi, the ecosystem’s consistent drive to decentralize, a rapid pace of L2 innovation, the proliferation of the EVM, and L1 blockspace demand to tokenize real world assets are all long term strengths could allow Ethereum to retain dominance.  

Bankless Take:

Crypto has increasingly become an election issue, but only because the Biden Administration has taken a clear stance against the industry, making it unrealistic that the SEC of this hostile administration would approve spot ETH ETFs solely based on political concerns.

The SEC’s October approval of ETH ETFs holding commodity futures suggests that the SEC viewed Ether as a non-security at that time, indicating spot instruments should receive approval on May 23 despite the overwhelming amount of evidence to the contrary. Although ETH sentiment is low, an unexpected approval likely reverses the tide; alternatively, a denial likely lays out the SEC’s case for why Ether is a security and could cause problems for alts.