Is the Ethereum ETF Really Going to Be Approved? This Involves a $13 Million Bet

Original Article Title: "A $13 Million ETF Drama"

Original Article Author: Azuma, Odaily Planet Daily

In the early hours of May 24th, Beijing time, the U.S. Securities and Exchange Commission (SEC) officially approved the 19b-4 form for all 8 spot Ethereum ETFs applied for by firms including BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark Invest, Invesco Galaxy, and Franklin Templeton, opening the door for ETH to enter the traditional financial markets.

It is important to note that although the 19b-4 forms for the aforementioned spot Ethereum ETFs have been approved, the ETFs still need their S-1 registration statements to become effective before they can officially start trading. Given that the SEC has just begun discussions with the issuers regarding the S-1, which will require negotiation and amendments, it is unclear how long this process will take—according to Bloomberg ETF analysts, it may still take several weeks.

With the SEC's announcement, the well-known prediction market Polymarket's bet on "Whether the spot Ethereum ETF will be approved by May 31st" has also closed, with the outcome set to be YES (i.e., "will be approved"), meaning users who chose YES will take home the full $13.22 million reward placed in the bet, while the funds wagered on NO (i.e., "will not be approved") will be lost.

In a supplemental explanation about the outcome, Polymarket stated: "Based on the documents released today, the SEC has approved eight proposals, allowing the listing and trading of Ethereum ETFs, and the documents also mention that they have 'hereby approved in an expedited manner,' therefore the final outcome of this bet will be YES."

However, this outcome has stirred up significant controversy within the Polymarket community.

The main skeptics come from users who chose NO, and below the bet, a large number of users are expressing dissatisfaction with Polymarket's outcome, even accusing Polymarket of "manipulating the market" and feeling like they have been "robbed."

In light of the collective user skepticism in this section, users who chose NO generally believe that Polymarket's outcome was not rigorous enough, as ETF approval requires the joint approval of two documents: 19 b-4 and S-1. The current status of the S-1 is undecided, and approval of just the 19 b-4 does not signify full ETF approval. Therefore, the market should not have closed as YES directly.

Some users have called for a market restart, suggesting a decision be made when the May 31 bet deadline arrives. Other users believe this issue stems from Polymarket's lack of strict rules and thus a 50/50 refund should be issued.

Objectively, in this event, it is apparent that Polymarket has a flaw in its rule design, failing to provide a clear criterion for executing the outcome before (or during the effective period of) the bet, and not fully explaining the specific conditions of "approval"—whether both the 19 b-4 and S-1 need to be approved simultaneously.

As for the potential reasons behind such a flaw in Polymarket: first, the sudden turn of events in this ETF approval, just a week prior, the general market consensus was that a spot Ethereum ETF would find it challenging to pass this hurdle. Therefore, the SEC had not adequately communicated with major applicants and exchanges before. However, with the sudden shift in the Biden administration's regulatory stance on cryptocurrency due to electoral pressures, the SEC had to urgently "work overtime," but the time window was too short, forcing the SEC to finalize the 19 b-4 first, while the S-1 approval still needs more time. Second, there is no precedent for a similar approval process in the history of cryptocurrency ETFs. At the beginning of the year, the spot Bitcoin ETF was approved with both the 19 b-4 and S-1 documents simultaneously, so Polymarket may not have anticipated a time gap between the two.

Consequently, under imperfect rules, Polymarket could only choose a result that was relatively more acceptable to the market. Considering the supplemental explanation, Polymarket may have taken into account the industry's widespread belief that the approval of the 19 b-4 implies that S-1 is only a matter of time, hence choosing YES as the final outcome.

However, on the flip side, users who selected NO find it challenging to accept this somewhat vague answer, especially after losing real money.

As of the time of posting, Polymarket's official channels have not yet provided further response on this matter. Odaily Planet Daily will continue to keep you informed and promptly follow up on the latest developments.

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