5 Impacts the Ethereum ETF Will Have on Altcoins

Ethereum surprised almost everyone following the unexpected news that the licensing process for Ethereum Spot ETFs was progressing . Before then, most investors had fully accepted the fact that the U.S. Securities and Exchange Commission (SEC) would almost certainly deny these applications.

So when Bloomberg's renowned ETF analysts suddenly increased their approval rating from 25% to 75%, ETH experienced a sudden price surge the likes of which we haven't seen in quite some time. As the rumor spread, ETH price broke through multiple support levels, rising around 20% to reach $3,800.

This extremely unexpected price increase shows the high level of risk involved in the approval of the Ethereum ETF Spot. In fact, this means more for decentralized finance (DeFi) than the approval of Bitcoin ETF Spots. While Bitcoin ETFs have solidified Bitcoin as an institutional asset, an Ethereum ETF would legitimize altcoins and propel them to the next stage of the market rally. Below is a breakdown of the implications now that the SEC has given the green light to Ethereum ETF applications.

Layer 2 and DeFi OG

Ethereum Layer 2 solutions like Optimism and Arbitrum will certainly benefit along with Ethereum. In fact, as the market recovered earlier in the week, these Token saw similar price moves to ETH, recording double-digit percentage growth. Rollups are now an integral part of the entire Ethereum ecosystem and are therefore inevitably tied to the success of ETH.

DeFi OGs like Uniswap or AAVE also represent a part of Ethereum due to their direct link with EVM technology. These pioneering DeFi projects have done well during the recent bull run and will likely continue to benefit alongside Ethereum, simply due to the legitimization that ETF approval brings to the projects.

EVM compatible projects

Any project and blockchain compatible with EVM will receive a good impact. This puts projects like Avalanche and Polygon in a better position than Algorand, which is not yet compatible with EVM.

EVM compatibility will become a more pressing issue than it has been in the past few years. This is partly because the Ethereum ETF Spot approval brings some form of regulatory clarity to Ethereum and it will generate excitement around the world's second largest blockchain.

DEX and Lending thrive

So far, we have struggled to see “widespread adoption” of decentralized finance (DeFi). It's still not particularly user-friendly, it's often unsafe, and regulators generally don't like it. But an Ethereum ETF will change all that.

It makes investing in DeFi simpler and safer, so we may start to see everyday users flock to this space in search of outsized returns.

Projects that provide the most functional amenities will benefit the most if this happens. For example, it would be good news for decentralized exchanges like SushiSwap or Balancer, as well as borrowing protocols like AAVE and Compound.

L1s like Solana may struggle

Ethereum's competitors (including Solana) will likely struggle to find superiority in the post-Ethereum ETF environment. Of course, projects like Solana may still reach All-Time-High this cycle, as the Ethereum ETF Spot ushers in much-needed clarity for decentralized blockchains.

However, with the approval of the Ethereum ETF, Ethereum becomes the leading blockchain in DeFi. Any challenger previously dubbed the “Ethereum killer” will likely be left behind.

Zk-rollups and RWA

Ethereum has been home to new technological developments, such as zero-knowledge proofs, powering many of Ethereum's L2s, and real-world asset (RWA) Tokenize experiments. BlackRock's Tokenize liquidation fund, BUIDL, is built on Ethereum.

Following ETF approval, we may see more projects building on Ethereum. Some may even move from L1s to Ethereum rollups, seeing this as a more attractive direction of development - like Celo, which recently decided to migrate to Ethereum and use OP Stack technology.

summary

With this development, we could see a series of new Token being launched. The growing number of altcoins will naturally lead to growth in DeFi 's TVL , but it also comes with caveats. More opportunity often means more risk, and this is infinitely more evident in the DeFi space. So we may also see more scams, rug pulls and losses will be bigger.

For investors, one needs to increase security and ensure thorough research before investing in any project, no matter how interesting and innovative it may sound. Not only that, investors also need to avoid getting caught up in the excitement of a rising market.

The old saying—buy the rumor, sell the news—remains true in crypto, as it does in traditional markets. Given the price surge we saw in ETH on rumors of an ETF approval, we fully expect to see a sell-off in the following days. This short-term volatility is normal and necessary for a long-term sustainable market price increase. But a wise investor will avoid making trading decisions based on FOMO and waiting for a correction to make his next moves.

VIC Crypto compiled

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