If they approve an ETF too soon, the floodgates will open and they'll be done filling their pockets with cheap coins to manage on the behalf of their investors and only be able to charge service fees for the coins they managed to get their hands on.
once the first spot ETF gets approved. everyone else will read the wording of the applicants application and copy and paste their own application template, knowing that the wording is exactly what the regulators want to see and hear. to match the details to then get near instant approval. causing as you say a flood gate of spot ETF.
regulators dont want to audit hundreds of small businesses they would prefer to audit just a couple well known businesses they already audit for other things, where they can just get paid their regular audit fee's to continue doing what they are already doing.
regulators and their central bank partners do not want to see loads of small business compete against the elite. however the elite cant just jump into hoarding coin because of their banking charters and other regulations making them have to stick to fiat. so laws and regulations have to change to allow the elites in first, grab what they can. apply under some special permit only they can compete against. to monopolise/own the spot ETF market.
(much like setting high standards to even be approved to 'go public' or appear on the nasdaq, they will of course want the same thing with spot ETF's )
you wont see some small-mid size business get approved first. it would be one of the mega institutions that get approval first. and under some shady permit that only allows other mega institutions to get approved.