Contrary to market expectations, Coinbase analyst David Han believes that the chances of a spot Ethereum exchange-traded fund (ETF) approval are higher than anticipated. Despite the Securities and Exchange Commission's (SEC) silence on the matter, Han thinks that the market may be underestimating the timing and odds of a potential approval.

The SEC has key deadlines coming up on May 23 and 24 to decide on spot Ethereum ETF applications submitted by VanEck and ArkInvest/21 Shares. While expectations of approval this month have declined, Coinbase believes that the existence of a U.S. spot Ethereum ETF is a question of "when, not if."

The rationale used to approve spot Bitcoin ETFs - that the correlation between the CME futures product and spot exchange rates is sufficiently high - also applies to Ethereum. However, the SEC's apparent silence and lack of clear regulatory guidance on staking may impact the approval of spot Ethereum ETFs that include staking rewards.

Despite this, Coinbase believes that the odds of approval are closer to 30-40%, contrary to the 16% odds priced in by the Ethereum-based decentralized prediction market platform Polymarket. The Grayscale Ethereum Trust (ETHE) is currently trading at a 24% discount to net asset value.

Ethereum has underperformed other large-cap cryptocurrencies year-to-date, gaining around 33% in 2024 compared to Bitcoin's 57% price increase and Solana's 64%. However, Coinbase remains positive on Ethereum's longer-term prospects, citing its strong persistent demand drivers and ability to capture both store-of-value and technology-token narratives.

While Ethereum faces open questions about its position in the crypto market, Coinbase believes that it still offers important advantages that distinguish it from other smart contract networks. These include the maturity of its developer ecosystem, the proliferation of its Ethereum Virtual Machine platform, the utility of ether as collateral in DeFi, and the decentralization and security of the network.