After the approval of Spot Bitcoin exchange-traded funds (ETFs) in January this year, the crypto sector has secured yet another victory with the approval of Spot Ethereum ETFs.
On May 23rd, the US Securities and Exchange Commission (SEC) approved a total of eight spot Ethereum ETFs from BlackRock, Fidelity, Franklin, Grayscale, VanEck, Ark Invest 21Shares, Bitwise, and Invesco Galaxy for listing on NYSE Arca, Nasdaq, and Cboe BZX exchanges.
Up until this week, the crypto market was expecting a rejection only to see a sudden reversal from the SEC. As speculation rose regarding the agency planning to actually approve Ether ETF, the SEC also asked issuers to update their applications quick.
Given that the SEC moved in such a hurried and uncoordinated manner, it has been speculated to be a politically motivated decision.
“We view this ETF approval, and crypto more broadly, as an increasingly political issue ahead of the 2024 US presidential election,”
wrote JPMorgan analysts in a report on Friday.
This week, the US House of Representatives also passed the FIT 21 bill that gives CFTC jurisdiction over crypto though it’s yet to pass the Senate.
It’s hard to believe this SEC would do us any favors like approving the spot ETH ETF.
But policy is politics, and crypto has been winning the political battle for months.
Maybe the Biden camp saw how many voters Trump could win with one pro-crypto comment and decided to pivot.
— Jake Chervinsky (@jchervinsky) May 21, 2024
As a result of this, the price of ETH went from $3,069 on Monday to surpass $3,800 on Wednesday and then went as high as $3,900 on Thursday, the day of the approval, only to fall a little to $3,669. As of writing, ETH/USD is trading at $3,741, and ETH/BTC is at 0.0543.
This lack of momentum can be attributed to the crypto sector already being long on ETH for years and a classic case of ‘buy the rumor, sell the news.’ Even BTC price dropped 19% in the two weeks following the ETF approval before hitting a new all-time high (ATH).
This suggests that the ETH price could see further downside, and we can get back to $3K, where both retail and institutional investors can start buying ETH and build their portfolios.
The SEC has only approved 19b-4s and has yet to approve S-1s, which will clear the ETFs to launch and be live for trading.
The S-1 is a comprehensive document that details the financials of the issuer as well as their risk profile and the securities they want to offer.
According to analysts, it can take anywhere between weeks to months to get S-1 approvals. JPMorgan analysts expect spot Ethereum ETFs to begin trading “well-ahead of November.”
alpha on why ETH isn’t mooning: –>only 19b-4s approved, not S-1s–>approval was by division of trading/markets on ‘delegated authority’–>means a commissioner can challenge in next 10 days (also means they are trying to hide the vote b/c it’s political)
what’s really going…
— _gabrielShapir0 (@lex_node) May 23, 2024
This approval came after issuers deleted any staking references from their 19b-4 forms.
Staking is one of the most attractive points of Proof-of-Stake (PoS) networks like Ethereum which offers additional rewards to token holders. This is why, a total of 32.54 million ETH have been staked so far, representing a 27.15% share of ETH supply.
In Q1 of 2024, there has been a 9% increase in staked ETH driven by liquid staking, restaking, and liquid staking, as per a report by Glassnode.
The ETH ETF actually came at a time when there has been no clear narrative to aid the price through the summer.
So, the approval helped the broad crypto industry turn green with the total crypto market cap reaching $2.7 trillion. With that, the market sentiments have been flashing ‘Extreme Greed’ since Tuesday, as per the Crypto Fear and Greed Index with a reading of 76 on a scale of 1-100.
While ETH and altcoins like PEPE have been enjoying an uptrend, Bitcoin has been experiencing pressure, with its price going from $71,465 on Tuesday to $66,940 on Friday. Now, BTC/USD is back above $69,000, up 156% since Q3 2023 compared to Ethereum’s 124% upside during this time.
The weakness in BTC prices may be reflecting worried market sentiments regarding future Bitcoin ETF flows now that yet another product has entered the market. However, not everyone believes so; some expect BTC to lead and ETH to only get a fraction of its flows.
One of the challenges for Ether ETFs in penetrating the 60/40 Boomer world is distilling its purpose/value into an easy-to-understand sound bite a la “bitcoin is digital gold” Does a simple one-liner like that exist for ether? If so, what is it?
— Eric Balchunas (@EricBalchunas) May 24, 2024
When it comes to how much institutional capital ETH ETFs can potentially attract, Standard Chartered Bank has predicted inflows to be as much as $45 bln within a year of going live.
In comparison, Bitcoin ETFs have already seen $57 bln in assets under management (AUM) in less than five months.
The Bitcoin ETF race is being led by BlackRock and Fidelity, both of which, as per Bloomberg’s Senior ETF analyst Eric Balchunas, have accumulated more assets in their first 50 days than any other ETF in history.
“This is a big achievement for not just ETH but the entire crypto industry, marking yet another win,” said Ape Terminal Founder Hatu Sheikh. “
“I expect a huge influx of funds to flow into ETH ETF, but I do not see it taking the limelight away from BTC as they both have their own unique functions. In fact, this is just the beginning, and we can very well see Solana and even the original meme coin Doge get their own ETFs,”
Sheikh added.
“Ultimately, it’s good for the sector to drive innovation and adoption by increasing accessibility, providing regulatory clarity, and attracting institutional investors.”
As ETFs see an influx of retail and institutional capital, the price of BTC and ETH, along with the rest of the market, is also expected to rally hard in the coming months.