Three common questions after the U.S. SEC approves ETH ETF

The U.S. Securities and Exchange Commission (SEC) recently passed key rule changes and approved the listing of ETFs for Ethereum’s native token ETH. The unexpected move left many industry observers questioning the motivations for the decision and its potential impact on Ethereum and other major cryptocurrencies.

CoinDesk's editorial attempts to answer several commonly asked questions.

Question 1: Are there political motives behind the decision?

A shift in cryptocurrency regulations?

The timing of the SEC's approval has prompted speculation about political motives behind it. Just days before the announcement, the U.S. House of Representatives passed the important cryptocurrency law FIT 21. And not long ago, there were bipartisan efforts in Congress to repeal the controversial SEC cryptocurrency custody accounting rules, indicating that the regulatory environment may be shifting.

( The crypto market bill FIT21 successfully passed the House of Representatives, with support and opposition rising. What’s the next step? )

( "Custody should be considered a corporate liability" The U.S. House of Representatives passed the SEC cryptocurrency accounting rule SAB 121, and the industry rebounded )

Impact of legislative action

Democrats are actively involved in these legislative actions, and it seems that the US government’s stance on cryptocurrencies is softening. Biden’s decision not to veto FIT21, the cryptocurrency market structure bill, shows a major concession. This political background may have influenced SEC Chairman Gary Gensler’s attitude towards cryptocurrency regulations, possibly believing that a stricter stance would become a political liability.

Support from former President Trump

Additionally, former President Trump’s recent support for cryptocurrencies has taken further effect. Gensler may believe that continuing to reject the ETH ETF is politically disadvantageous, especially given Trump’s support.

( Trump said the United States must become a leader in encryption and promised to commute the sentence of the founder of Silk Road )

Question 2: Impact on Ethereum?

Increase institutional interest

The approval of the ETH ETF is expected to significantly increase institutional interest in Ethereum. The move is more than an endorsement, it provides a familiar investment vehicle for a variety of investors ranging from individual 401(k) holders to large hedge funds.

(However, some people believe that the market knows too little about Ethereum: older people do not understand "Ethereum", and ETH ETF lacks traditional market selling points )

Potential changes in market dynamics

Michael Anderson, co-founder of Framework Ventures, pointed out that many institutions may be rushing to adjust their strategies and infrastructure to adapt to the new Ethereum ETF. The entry of these funds may bring more users to the Ethereum network. In particular, fund managers may not be allowed to pledge their ETH holdings, prompting new investors to pledge ETH themselves to earn income.

Clarify regulatory status

The approval also brings clarity to Ethereum’s regulatory status.

Variant General Counsel Jake Chervinsky emphasized that if these funds are allowed to trade, it may mean that uncollateralized ETH is not considered a security by the SEC, which may encourage more institutions to enter the market, which have been hesitant in the past due to regulatory uncertainty.

Positive impact on the Ethereum ecosystem

The launch of an ETH ETF could have far-reaching consequences for the Ethereum ecosystem. The possible buying pressure from these funds will benefit Ethereum and L2. Ethereum's token burning mechanism, which destroys tokens in every transaction, may see a new deflationary trend ( inflation at press time ) if transaction volume increases due to ETF-driven market dynamics.

Staking economy

The impact of staking economics is another key area to focus on. As platforms like Lido make it easier for individuals to stake ETH, this may exacerbate concerns about the centralization of staking ETH as ETFs may remove more ETH from circulation.

For related discussions, please see the Podcast: What are the factors of "short-term short-term, long-term bullish" after the EP.185 ETH ETF is passed? feat. Talkchain 606

Strengthening Ethereum’s position

The SEC’s approval of the ETH ETF is an endorsement of Ethereum and could solidify its leadership position. Michael Anderson suggested that seeing even a small portion of institutional inflows into Bitcoin ETFs could solidify Ethereum’s dominance in terms of market share and valuation.

Question 3: Opportunities for other blockchains?

Prospects for other chains

This development may also create opportunities for other blockchains such as Cardano, Solana and Ripple. However, these blockchains face additional regulatory hurdles. While the SEC is vague about Ethereum's status, it clearly classifies assets like Solana's SOL and Cardano's ADA as securities, complicating their path to ETF approval.

Financial institutions need help

Financial institutions like CME play a key role in the adoption of Bitcoin and Ethereum futures. For other cryptocurrencies to achieve similar adoption, they will also need support from financial institutions, a prospect that is currently uncertain.