Crypto prices have surged on signs of momentum toward U.S. approval of exchange-traded funds investing directly in the second-largest token Ether, a shift from a more downbeat outlook as recently as last week.

The market-moving ETF speculation is something of a redux of the investor enthusiasm that greeted comparable U.S. Bitcoin funds, whose January listing spurred a rally in the biggest digital asset to a record high. 

Ether rose almost 14 per cent on Monday — the steepest advance since November 2022 — before adding to the gains to change hands at US$3,675 as of 7:31 a.m. in London on Tuesday. Bitcoin at one point climbed toward $72,000, in sight of its mid-March all-time peak of nearly $74,000.

The U.S. Securities & Exchange Commission contacted at least one exchange and at least one potential spot-Ether ETF issuer to update related 19b-4 filings, according to people familiar with the matter, who asked not to be identified as the matter is private. That’s a sign that odds for SEC approval may be rising, one of the people said. The dialog is an unexpected shift but a green light is by no means guaranteed, the person added.

ETF paperwork

The 19b-4 filings are just some of the required paperwork. Issuers also need the regulator to sign off on S-1 registration statements before launching products. A decision on at least one spot-Ether ETF application is due by May 23.

An SEC spokesperson said the agency doesn’t comment on individual filings.

Social media is alive with speculation that “the SEC might be more likely to lean toward potential approval, and traders are now scrambling to put on positions since many had completely written off even the remote possibility of an approval,” said Chris Newhouse, an analyst at Cumberland Labs. 

Ether is the native token of the Ethereum blockchain, the most important commercial highway in crypto. The network is popular for decentralized financial services, where investors trade, borrow and lend via automated software protocols rather than traditional intermediaries. 

Rising odds

On Monday, Bloomberg Intelligence ETF analyst Eric Balchunas said he and his colleague James Seyffart had increased the estimated probability that a spot-Ether ETF gets approved to 75 per cent from 25 per cent. 

Some fund companies had expected a rejection because their private talks with the SEC hadn’t been as robust compared with the runup to the launch of spot-Bitcoin ETFs, Bloomberg News reported on Friday, citing two people familiar with the matter, who asked not to be named discussing private conversations. 

Caution was still evident among some investors. Ravi Doshi, head of markets at FalconX, said that the company’s “derivatives desk has seen the majority of our counterparties fade the move with the expectation that the SEC will move slower than the markets are anticipating.”

A skeptical SEC, which otherwise has been cracking down on crypto, reluctantly acquiesced to U.S. spot-Bitcoin ETFs at the start of the year in the wake of a court reversal in 2023. The products from the likes of BlackRock Inc. and Fidelity Investments have amassed $58.8 billion in assets, one of the most successful debuts ever for a fund category. 

BlackRock and Fidelity are also seeking to start Ether funds. The digital-asset industry views ETFs as a way of widening crypto’s investor base. Retail investors, hedge funds, pension funds and banks have sprinkled capital into the Bitcoin funds — Millennium Management, Steven Cohen’s Point72 Asset Management and Elliott Investment Management are among the buyers.