In the world of cryptocurrency exchange-traded funds (ETFs), the anticipation for a spot XRP ETF approval has been met with skepticism from financial analysts. While there is a glimmer of hope among some XRP enthusiasts, experts believe that regulatory hurdles and an ongoing legal battle between the Securities and Exchange Commission (SEC) and Ripple could significantly delay or even prevent the approval of such an ETF.
One of the key obstacles facing the potential approval of a spot XRP ETF is the SEC’s ongoing case against Ripple, the blockchain company behind XRP. In the lawsuit, the SEC argued that XRP constitutes security.
However, in a pivotal ruling in July, the judge determined that XRP is not a security when sold to institutional buyers but left the status of XRP in legal limbo. The ongoing legal battle is set to continue with a trial scheduled for April 23, further complicating the regulatory landscape for XRP ETFs.
The crucial role of SEC recognition
According to Townsend Lansing, head of product at CoinShares, the approval of an XRP ETF is contingent on the SEC either being forced to or willingly conceding that XRP is not a security. This recognition by the SEC is a fundamental requirement for successfully launching a spot XRP ETF. Without it, the chances of approval remain remote.
Scott Johnsson, general partner at Van Buren Capital, shares the sentiment that the likelihood of an XRP ETF approval in the near future is “very slim” and may even necessitate new leadership at the SEC.
Comparing it to the approval process for other cryptocurrency ETFs, CoinShares research analyst Max Shannon pointed out that it took over a decade to approve a spot Bitcoin ETF. He emphasized that the lack of an approved XRP futures ETF in the United States further hinders the prospects of a spot XRP ETF.
Absence of XRP futures ETFs
In contrast to Bitcoin and Ethereum, XRP currently lacks an approved futures ETF in the United States. Bloomberg ETF analyst James Seyffart expressed little confidence in the imminent approval of an XRP ETF, considering it a “remote possibility” due to the SEC’s ongoing legal battle with Ripple. Seyffart highlighted the absence of XRP futures ETFs as a crucial factor, making the approval process even more challenging.
Johnsson argued that even if a financial exchange like the Chicago Mercantile Exchange (CME) were to list XRP futures, the SEC would demand a substantial correlation between XRP futures and spot markets before considering the approval of a spot XRP ETF.
This requirement is intended to ensure that surveillance-sharing agreements are robust enough to detect fraud and manipulation in the spot market, a lesson learned from the approval process of spot Bitcoin funds.
Despite the skepticism among financial analysts, there have been mixed signals from industry leaders. Ripple CEO Brad Garlinghouse, during a January interview at the World Economic Forum, left some room for speculation when asked about the possibility of an XRP ETF.
Similarly, BlackRock CEO Larry Fink’s response to a similar question led to brief excitement in the XRP community. However, Charles Gasparino of Fox Business later reported that BlackRock had no plans for a spot XRP ETF, citing sources with “direct knowledge of the matter.”
While the approval of an XRP ETF remains uncertain, there is hope for other cryptocurrency ETFs. In an interview, Sandy Kaul, head of digital assets at Franklin Templeton, hinted that the company may offer clients more opportunities to invest in crypto and anticipated “more filings coming from us at some point.” This statement has sparked optimism for the potential approval of other cryptocurrency ETFs.