Ethereum ETF approved
On May 24, the Ethereum spot ETF was approved. Specifically, the SEC has approved the 19B-4 forms of eight spot Ethereum ETFs, including those from BlackRock, Fidelity, and Grayscale, and still needs time to approve the S-1 form, the issuer plan.
In short, the U.S. Securities and Exchange Commission (SEC) approved the plans of the New York Stock Exchange, Chicago Board Options Exchange and Nasdaq for spot Ethereum ETFs. However, the SEC has not yet issued full approval for spot Ethereum ETFs and still needs to approve the issuer's plan.
Although the form has been approved, the ETF issuer needs to make the S-1 registration statement effective before it can begin trading. The SEC has just begun discussing the S-1 form with issuers, and it is unclear how long the process will take, but some analysts speculate that it could take weeks.
“I think if they tried really hard, they could get it done in a few weeks, but there are plenty of examples in history where it’s taken more than three months,” added James Seyffart, an ETF analyst at Bloomberg.
A spokesman for the U.S. Securities and Exchange Commission (SEC) said the agency would not comment beyond the approval order.
After the news of the approval of the spot Ethereum ETF came out, the US SEC website crashed due to too many visits.
Delete pledge content for compliance
In addition, Bloomberg ETF analysts said that given the change in political winds, the US government's stance on Ethereum spot ETFs has completely changed.
It is worth noting that perhaps due to compliance requirements, Grayscale, Fidelity, ARK Invest and 21Shares have all deleted pledge-related content.
In response, Alex Thorn, head of research at Galaxy Digital, said that they may try to find a balance between the following two points: ETH itself is not a security, but the pledged ETH is a security, which is consistent with their various lawsuits and reports on the investigation.
In addition, judging from the SEC's approval time, it may still take several months for the Ethereum spot ETF to be officially launched.
On the one hand, we still need to wait for the approval of the S-1 registration application document, which is a registration statement that a company must submit to the SEC before publicly issuing shares, and there is no deadline for the approval of the document.
On the other hand, as the "leader" of the first batch of Bitcoin spot ETFs, BlackRock's participation is also believed to affect the approval process of the Ethereum spot ETF to a certain extent.
A change in wind direction
It is worth mentioning that the approval of the Ethereum spot ETF is also considered a shift in the direction of US crypto regulation.
Variant Chief Legal Officer Jake Chervinsky said this means that there has been a major shift in regulatory attitudes in both the House and Senate, and this matter may be more important than the ETF itself.
And Dragonfly partner Haseeb Qureshi also said on the X platform, "The change in regulatory attitude towards Ethereum ETFs indicates that the Biden administration will soften its crypto policy because they do not want to lose votes in the election competition (referring to crypto regulatory issues). In the coming months, the market will see other regulators change their attitudes as well."
Supply and demand impact
For Ethereum, which has been plagued by negative news, the significant increase in the possibility of approval of the Ethereum spot ETF has undoubtedly broken its current low popularity.
In addition to Ethereum's price hitting a nearly two-month high and its market value exceeding Vanguard S&P 500 ETF and Mastercard, Ethereum-related trading activities have also surged, including on-chain analyst Ember's monitoring of multiple whales purchasing ETH during the rise in Ethereum prices, most of which used leverage, and Coinglass data showing that the total open interest in Ethereum futures contracts has reached US$15.6 billion, setting a new record high.
The market is also optimistic about Ethereum’s future performance and makes optimistic predictions.
On the one hand, the Ethereum spot ETF will bring strong capital inflows after its approval. For example, Joe Lubin, founder and CEO of ConsenSys, believes that institutions that have been exposed to Bitcoin through the newly launched Bitcoin ETF "are most likely to want to diversify their investments into the second approved ETF", and the natural, pent-up demand for buying ETH through ETFs will be considerable, making the price of ETH more sensitive to capital inflows.
Bitcoin spot ETFs have also brought in tens of billions of dollars of capital into the Bitcoin market. According to SoSoValue data, as of May 22, the total net asset value of Bitcoin spot ETFs has exceeded US$58.9 billion, and the ETF net asset ratio (market value to the total market value of Bitcoin) has reached 4.29%, with a historical cumulative net inflow of more than US$13.17 billion.
At the same time, the decreasing supply of Ethereum available for purchase is also considered an important reason.
As Coinbase said in a recent report, Ethereum does not have "major sources of supply-side excess," such as token unlocking or pressure from miners selling.
On the contrary, both staking and Layer 2 growth have proven to be important and growing sources of consumption for ETH liquidity.
Similarly, Joe Lubin also bluntly stated that compared to when the Bitcoin spot ETF was approved in January this year, the supply used to meet the institutional demand for purchasing ETH will be smaller, and a large part of it will not be available for ETF use.
On-chain data shows that more than 27% (as of May 22, the total amount of Ethereum beacon chain staked exceeded 32.55 million) of the total ETH supply has been staked on the Ethereum network. These ETH are locked in contracts to earn returns for their owners. A lot of ETH is used in core protocols, decentralized financial systems or DAOs.
In addition, Joe Lubin also proposed that new activities on Ethereum will cause the network to destroy a large amount of existing ETH supply over time, which will further limit the supply. Ultrasound data shows that since Ethereum implemented the fee destruction mechanism, Ethereum has destroyed a total of more than 4.298 million ETH, and the overall supply growth rate (ie inflation rate) is -0.73%.
The arrival of the cottage season
So, if the SEC approves a spot Ethereum ETF, could it also approve other altcoin ETFs?
The logic of altcoin proponents — who believe that a non-Ethereum spot altcoin ETF could receive SEC approval soon after an Ethereum spot ETF — often follows a simple argument: If the SEC allowed Grayscale to convert its Bitcoin Trust into an ETF, why would the Commission refuse to trust promoters of other crypto assets to convert them into ETFs?
For obvious reasons, if the SEC claims that crypto assets are unregistered securities, that argument will likely fail. However, the SEC does not classify all crypto assets held in U.S. public trusts as securities.
Interestingly, many crypto trusts traded on the U.S. stock exchange OTC Markets hold unregistered securities explicitly designated by the SEC, including SOL, MANA, and FIL. More crypto assets are rumored to be unregistered securities designated by the SEC: XLM and ZEN.
Nonetheless, some trusts traded on the U.S. OTC market do not hold unregistered securities designated by the SEC, such as the DOT or ETC Trusts. Perhaps, the Commissioners may approve spot ETFs based on such potentially non-security crypto assets.
It’s important to note that just because the SEC hasn’t classified a crypto asset as an unregistered security doesn’t mean it isn’t. Congress has not required the SEC to proactively classify all assets.
Instead, the SEC simply chooses to accept or reject the applications it receives, or to take enforcement actions for illegal conduct, on a case-by-case basis because it has the time, money, staff, and resources.
The silence of the commissioners does not mean no appointment.
Of course, there are those who object to this logic. Unlike altcoins such as DOT or ETC, only futures contracts for Bitcoin and Ethereum are listed on the Chicago Mercantile Exchange (CME). The CME market size is large for ETH alone, which may be a reason for approving only the Ethereum spot ETF and not any other altcoins.
Final Thoughts
Standard Chartered Bank pointed out that the Ethereum spot ETF will bring in $15 billion to $45 billion in inflows, or 2.39-9.15 million ETH, in the first 12 months after its approval, which may push the Ethereum price to $8,000 by the end of 2024.
In any case, the approval of the Ethereum ETF is a milestone event and is worth our anticipation!
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