Original title: " Why An ETH ETF Might Be Delayed After All "
Written by: Sean Stein Smith, Forbes
Compiled by: Yvonne, Mars Finance
Given that most crypto assets have experienced breakout developments this year, there is reason to believe that the cryptocurrency market will continue to mature further. No matter how you look at it in the cryptocurrency industry, 2024 is shaping up to be the year that prices rebound and confidence among institutional and retail investors returns. Rising market sentiment has boosted public opinion around the possibility of ETH ETF approval. After all, there are currently 11 Bitcoin ETFs trading in the U.S. after years of rejections from various institutions. While flows may have slowed, the slowdown comes after a hot start that quickly propelled Bitcoin into the ranks of the world's largest ETF underlying assets.
With ETH still the second largest cryptocurrency in the world and the most important blockchain token in the cryptocurrency market, the time for an ETF appears to have arrived. Price volatility aside, the legitimacy a Bitcoin ETF creates in the TradFi space is significant; after years of ignoring the asset class, the billions of dollars in allocations and investments in 2024 cannot be ignored. El Salvador, a long-time buyer of Bitcoin, has moved the majority of its Bitcoin holdings into a cold wallet, kept in a secure location within sovereign territory.
Given all these positive trends, approval of the ETH ETF seems to be a sure thing. But now let's look at why this optimism should be tempered.
SEC
Led by Chairman Gary Gensler, anti-cryptocurrency views appear to have dominated the committee’s conversations, with the latest example being evidence that several U.S. companies are being investigated over their dealings with the Ethereum Foundation. These recent investigations follow a statement from the U.S. Securities and Exchange Commission that proof-of-stake blockchains (and related tokens) can be classified as investment contracts, as well as lawsuits against exchanges such as Coinbase and Kraken, which The focus is on stake-as-a-service provided to investors.
By focusing on the Ethereum Foundation, the SEC does have some information that it can use to build a case for classifying Ethereum as a security. The foundation has issued tokens to fund further development, some tokens have been allocated to founders, the work carried out by the foundation is related to increasing the value of said tokens, unlike Bitcoin there is a founding/management team involved in Ethereum Promotion and further development of Fang blockchain. Regardless of the opposition the SEC continues to face and the problems that may arise from unilateral action, the Commission appears set to continue these efforts.
Staking ETH and non-staking ETH
While the staking services offered by some exchanges did spark lawsuits and add fuel to the SEC’s case that ETH should be classified as a security, it could also be a factor that reduces the appeal of spot ETH ETFs. With the average return on Ethereum being just under 4%, this opportunity is attractive to retail investors, but it will be even more compelling to institutional pools that must manage the stable returns that investors are used to. With inflation still higher than pre-2020 levels, the yields generated by ETH will continue to attract attention.
On the other hand, the appeal of this yield, and of staking in general, is one of the core arguments used by the SEC to frame its recent effort to classify ETH as a security. Since ETH staking involves centralization (whether through a centralized exchange or a decentralized protocol), a concerted pursuit of profit, and limited direct involvement from most staking participants, this argument is not entirely unreasonable.
ETH’s continued development to attract investors could also become another roadblock to spot ETF approval.
Bitcoin ETF success is a dilemma
Finally, the success of multiple spot Bitcoin ETFs has once again triggered a storm of criticism and counterattack from U.S. policymakers. New efforts to crack down on the energy consumption of Bitcoin miners, the possibility of reimposing a 30% target tax on said miners, and concerns about price volatility continue to fuel public debate and undermine demand for more crypto ETFs.
Just as cryptocurrency investors and advocates cheer for higher prices, growing traffic and trading volumes, and more users joining the space, these positive trends are being used against further developments.
The cryptocurrency industry has a lot to celebrate in 2024, but these same successes may actually prevent more positive news.
