On May 23, the U.S. Securities and Exchange Commission (SEC) approved eight Ethereum ETFs, including VanEck, Fidelity, Franklin, Grayscale, Bitwise, ARK Invest & 21Shares, Invesco & Galaxy, and BlackRock's iShares Ethereum Trust, which are listed in SEC documents. They are planned to be listed on Nasdaq, NYSE Arca, and CBOE BZX. This is a big step towards reality for spot Ethereum (ETH) exchange-traded funds since the Bitcoin ETF was approved in January this year. This article will briefly introduce the process before and after the SEC approved the Ethereum ETF, and analyze the latest trends and market opportunities in U.S. crypto regulation.
1. The process before and after SEC approval
Since Bitcoin ETC was approved for listing and trading at the beginning of this year, whether the Ethereum ETF can be approved has become a matter of concern to the cryptocurrency community. Unlike Bitcoin, since Ethereum has no theoretical total upper limit, under the PoS mechanism (proof of stake mechanism), the issuance of ETH is related to network activity, and the behavior of large holders may cause ETH price fluctuations. Therefore, the SEC has always believed that the high concentration of Ethereum holders may increase the risk of market manipulation. In other words, although the PoS mechanism helps Ethereum overcome the problem of energy waste and adopts a model that relies on a trusted validator network, it brings the risk of Ethereum (ETH) being regarded as a security by the SEC. In short, this model provides regulators with new reasons to consider Ethereum as a security.
Alex Thorn, head of research at Galaxy Digital, was pessimistic about the approval of the Ethereum ETF for this reason.
To address the SEC’s concerns, potential spot Ethereum ETF issuers, including Fidelity, Franklin Templeton, Ark, Invesco, Grayscale, Bitwise, and VanEck, have updated their filings to confirm that they will not stake ETH for yield.
This means that they will not use trust assets as collateral. This move effectively reduces the risk that Ethereum (ETH) will be considered a security. Because staking may involve expectations of future returns, which is a typical feature of securities. This adjustment can be seen as a compromise to reduce regulatory scrutiny and market uncertainty.
On May 23rd, US time, according to a document uploaded to the website of the US Securities and Exchange Commission, the commission said that it had approved the launch of spot Ethereum ETFs to accelerate the launch. The SEC document lists eight Ethereum ETFs from VanEck, Fidelity, Franklin, Grayscale, Bitwise, ARK Invest & 21Shares, Invesco & Galaxy, and BlackRock's iShares Ethereum Trust, which are planned to be listed on Nasdaq, NYSE Arca, and CBOE BZX.
However, these ETFs are not yet cleared for trading. The SEC approved the so-called Form 19b-4 related to these ETFs, but the ETF issuers still need to wait for the S-1 registration statement to become effective before they can begin trading.
“There’s probably going to be a gap between when the S-1 is approved and when these ETFs start trading,” said Seyffart, ETF analyst at Bloomberg Intelligence. “My guess is it’s at least a week, but it could be longer. If history is any guide, it could be longer, in the months. But I personally think it’s in the weeks. But right now everyone is just guessing.”
In addition, there are six Ethereum spot ETFs awaiting approval. Among them, the decision on the ARK 21Shares Ethereum ETF will be announced tomorrow night, and the fate of the Hashdex Nasdaq Ethereum ETF will be decided on May 30. A decision will be made on the Grayscale Ethereum Trust on June 18, the Invesco Galaxy Ethereum ETF on July 5, the Fidelity Ethereum Fund on August 3, and the last Ishares Ethereum Trust on August 7.
2. New trends in US crypto regulatory policies
The approval of the Ethereum spot ETF undoubtedly reflects, to a certain extent, the shift in the attitude of US regulators towards cryptocurrency policy. In fact, as mentioned above, pledge has always been a sensitive issue for Ethereum. Previously, the US SEC alleged in its lawsuit against Coinbase and Kraken that pledge-as-a-service products were unregistered securities and that they violated securities laws by providing pledge services through their platforms. In the approval of the Ethereum ETF, the potential spot Ethereum ETF issuer's commitment not to use trust assets as collateral reflects that the SEC regards ETH itself as a cryptocurrency rather than a security, but regards products or services derived from ETH pledge (such as pledging ETH as a service) as securities.
In fact, in a vote in the U.S. House of Representatives on Wednesday, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act by 279 votes to 136. This is a bill on digital assets (cryptocurrencies) and the regulation of the U.S. cryptocurrency market. It aims to provide a set of rules for the regulatory system of digital assets, which will be implemented by the Commodity Futures Trading Commission and the Securities and Exchange Commission. At the same time, another bill on cryptocurrency accounting standards, SAB121, is also about to be resolved. In the FIT21 bill, it is clearly defined which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which are regulated by the Securities and Exchange Commission (SEC). In other words, the core of the bill is to attach importance to the important differences in the legal nature of crypto assets as commodities and crypto assets with securities attributes, and to establish different regulatory frameworks in a targeted manner.
The approval of the Ethereum ETF and the passage of the FIT21 cryptocurrency bill mark a major shift in the regulatory landscape of cryptocurrency in the U.S. We can see that the U.S. Securities and Exchange Commission is trying to find a balance in the regulation of Ethereum (ETH), that is, the SEC is trying to distinguish the nature of Ethereum as a digital currency from the securitized products or services that may be involved in the financial activities in which Ethereum participates. Obviously, this attitude is also in line with the requirements of the above-mentioned FIT21 bill.
3. Approval brings development opportunities to the cryptocurrency trading market
Compared with Bitcoin, Ethereum has indeed performed slightly weaker in the cryptocurrency market over the past year. Especially after the bull market triggered by Bitcoin ETF at the beginning of this year, VanEck's approval of the first Ethereum spot ETF has undoubtedly had a huge impact on the market.
Data shows that due to this incident, Ethereum rose rapidly by 20% in one day. After the spot ETF was approved, its price stood at $3,800 in a short time. In the past 12 hours, the entire network had a liquidation of $319 million, of which $237 million was liquidated for long orders and $81.2424 million was liquidated for short orders. BTC liquidated $66.6292 million and ETH liquidated $122 million. PEPE broke through $0.000015 and is now reported at $0.00001525, setting a new record high. The intraday decline reached 11.9%, and the market fluctuated greatly.
In response, cryptocurrency traders say that if three long-term indicators continue to perform well, Ethereum could soar and retest the $5,000 price mark that it fell below in 2021.
“The dominance chart suggests that we are entering an ‘Ethereum season’ where Ethereum could outperform other cryptocurrencies,” noted anonymous cryptocurrency trader Blockchain Mane.
In addition, Geoff Kendrick, head of foreign exchange and digital asset research at Standard Chartered Bank, said that once approved, they expect the spot Ethereum ETF to attract inflows of approximately 239 million to 915 million Ethereum in the first year after approval. In terms of US dollars, this is equivalent to an inflow of approximately US$15 billion to US$45 billion.
Therefore, from the perspective of the possible impact of this approval on the future cryptocurrency trading market, when ETH is included in the spot ETF, it means that investors can gain exposure to Ethereum by purchasing ETF shares without directly holding or managing cryptocurrencies. This shift will provide a wider range of investors with channels to participate in the crypto asset market, thereby expanding the group of market participants. This trend may lead to increased liquidity in the cryptocurrency market and more stable prices as more funds enter the market.
On the other hand, the launch of the Ethereum spot ETF will not only have an impact on the price of Ethereum (ETH), but may also have a positive impact on the Altcoin market. This is because most Altcoin trading pairs in decentralized exchanges (DEX) are Ethereum pairs. When the price of Ethereum rises, these Altcoin tend to be passively pushed up. In other words, the emergence of the Ethereum spot ETF may drive the rise of the entire Altcoin market. It can be seen that with the approval of the Ethereum spot ETF, the door has been opened for more cryptocurrencies to apply for ETFs in the future.
That is to say, at the same time, the introduction of ETFs may also bring about the recognition of regulatory compliance, thereby enhancing investor confidence. It can be seen that the inclusion of ETH in spot ETFs will bring wider recognition and participation to the crypto industry, and have a positive and far-reaching impact on the cryptocurrency trading market. It is not difficult to foresee that corresponding spot ETFs including other digital assets may also appear in the future, making cryptocurrency assets, as a new asset class, a more acceptable investment and trading variety for the general public.
