The Securities and Exchange Commission’s (SEC) recent engagement with prospective issuers of spot Ethereum ETFs marks a significant shift in the outlook for potential approvals, according to Bloomberg ETF analyst Eric Balchunas. In an interview with The Block, Balchunas described this development as a "180" in the regulatory landscape.

“At this point, just the news that the SEC is engaged is the real heart of the matter. The 180, as we're calling it,” Balchunas stated.

The critical next steps involve the approval of the 19b-4 forms and the activation of the S-1 registration statements, he explained. Given the unique nature of this situation, Balchunas anticipates that the S-1 process could take longer than usual. Once these steps are completed, trading can commence.

“We don't know exactly when that will be, but all of these are logistics. To go over that mountain of possible approval is the big thing. Now it just comes down to logistics and legal documents and stuff like that, which, as far as I heard, everyone was caught flat-footed yesterday,” he said. “And so I don't know how fast the fast track is, but it's going to be probably a mad scramble for the next couple days, maybe even weeks — depends on the S-1.”

This engagement by the SEC comes just days before a critical deadline of May 23, when the commission must make a final decision on the VanEck Ethereum ETF. This last-minute engagement raises questions about the readiness of the applications, but Balchunas remains optimistic, noting that the recent experience with Bitcoin ETF approvals could streamline the process.

“It's a big help that they just went through Bitcoin a couple of months ago because there's going to be a lot of cut and paste. And then I didn't hear anything that told me that the comments were that crazy, that it would take longer than overnight. So that's got to be a good sign,” he said.

Balchunas highlighted the differences in preparation between the Bitcoin ETF approvals and the current situation with Ethereum. During the Bitcoin ETF process, the SEC’s proactive engagement allowed issuers ample time to prepare, resulting in substantial initial seed capital and lined-up investments. This time, the last-minute nature of the SEC's engagement could impact the readiness of issuers.

“My guess is they don't because it's off guard,” Balchunas remarked. “During the Bitcoin ETF process, because the SEC was so engaged with them, everybody was pretty optimistic — so they had time. And that is not the case here now.” However, he noted that major players like BlackRock could still manage to organize something swiftly due to their significant resources.

Balchunas also suggested that the demand for Ethereum ETFs might be lower than that for Bitcoin ETFs. “I think for people who are really into this, they probably already own it, right? And for the casual tourist types, I think a lot of them are probably satisfied with Bitcoin. It's the one they know the best,” he said.

He estimated that Ethereum ETFs might attract 10 to 15% of the assets that Bitcoin ETFs garnered, which would still amount to $5 to $8 billion — a considerable figure for any new financial product in its first few years.