Author: Nancy, PANews
The months-long Ethereum FUD boosted market confidence with a big bullish candle. For two consecutive days, the Ethereum spot ETF greatly increased the approval rate due to multiple sudden developments, and the price of Ethereum soared. Market expectations are generally optimistic. ConsenSys CEO even said that the "flood of demand" for Ethereum from the Ethereum spot ETF may cause supply tension, making its price more responsive to capital inflows. Has Ethereum opened a bull market upward channel?
The pledge content was deleted for compliance, but the approval of Ethereum spot ETF will still take time
As the deadline for the SEC to approve several Ethereum spot ETFs approaches, good news has come from the market. In addition to Bloomberg ETF analysts saying that the US government's position on Ethereum spot ETFs may change drastically in view of the change in political winds, people familiar with the matter revealed that the SEC asked Nasdaq and the Chicago Board Options Exchange to modify the Ethereum spot ETF application to prepare for the application. The regulator is inclined to approve the Ethereum spot ETF and has provided opinions on these applications.
Currently, many issuers have accelerated the relevant proposals. Six spot Ethereum ETF applicants have submitted revised 19b-4 documents, including VanEck, Fidelity, Franklin, Ark Invest, Grayscale and Invesco Galaxy. The 19b-4 document is used to inform the SEC of rule changes that allow funds to be traded on exchanges. It is one of the necessary documents for submitting ETFs for approval. According to Bloomberg senior analyst Eric Balchunas, it is heard that the SEC will return the revised 19b-4 document of the spot Ethereum ETF to them before 10 am local time on Wednesday. The president of ETF Store also gave a prediction that the SEC will approve it this week or this week.
It is worth noting that Grayscale, Fidelity, ARK Invest and 21Shares have all deleted pledge-related content, perhaps due to compliance requirements. In this regard, Alex Thorn, head of research at Galaxy Digital, said that if the speculation that the US SEC has made a 180-degree turn on the Ethereum ETF is true, 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.
Not only that, Franklin Templeton and VanEck's Ethereum spot ETF is listed on the DTCC (Depository Trust & Clearing Corporation) website, which is also seen as a positive signal by the outside world. However, it should be noted that the appearance in the qualification document does not represent the result of any unfinished regulatory or other approval procedures. This is a "standard practice" for DTCC to prepare for the issuance of new potential ETFs, and it still needs to wait for the approval result of the SEC and the time is uncertain.
In addition, judging from the approval time of the SEC, it may still take several months for the Ethereum spot ETF to be officially launched. On the one hand, although 19b-4 is reported to be approved, it still needs to wait for the approval of the S-1 registration application document, which is a registration statement that the company must submit to the SEC before publicly issuing shares, and there is no deadline for the approval of the document. According to well-known financial lawyer Scott Johnsson, the US SEC spent nearly 4 months reviewing and revising the S-1 form of the Bitcoin spot ETF and 5 months reviewing the S-1 form of Bitcoin futures. The Ethereum spot ETF may also take time in the S-1 application approval process, which may be at least a few weeks, or even several months; on the other hand, as the "leader" of the first batch of Bitcoin spot ETFs, the participation of BlackRock is also believed to affect the approval process of the Ethereum spot ETF to a certain extent. It is reported that August 7 is the deadline for BlackRock's application for approval.
It is worth mentioning that the approval of the Ethereum spot ETF is also considered a change in the US regulatory direction for cryptocurrencies. Variant Chief Legal Officer Jake Chervinsky said that if the Ethereum ETF is approved, it means that regulatory attitudes have changed significantly in the Senate and the House, which 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 the Ethereum ETF indicates that the Biden administration will soften its crypto policy because they do not want to lose votes in the election competition over "small things" (referring to crypto regulatory issues). In the coming months, the market will see other regulators change their attitudes as well."
Reduced spot ETF demand and supply may drive prices higher
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 the future of Ethereum and makes optimistic predictions. On the one hand, the approval of the Ethereum spot ETF will bring it strong capital inflows. 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." The natural, pent-up demand for purchasing ETH through ETFs will be considerable, making the price of ETH more sensitive to capital inflows.
Standard Chartered Bank pointed out that the Ethereum spot ETF brought in $15 billion to $45 billion in capital inflows in the first 12 months after its approval, that is, an inflow of 2.39-9.15 million ETH, which may push the price of Ethereum to $8,000 by the end of 2024. Bitcoin spot ETFs have also brought in tens of billions of dollars in capital inflows to the Bitcoin market. According to SoSoValue data, as of May 22, the total net asset value of Bitcoin spot ETFs has exceeded $58.9 billion, and the ETF net asset ratio (market value to the total market value of Bitcoin) has reached 4.29%, and the historical cumulative net inflow has exceeded $13.17 billion.
At the same time, the continuous reduction in the supply of Ethereum available for purchase is also considered an important reason. As Coinbase said in a recent report, there is no "major source of supply-side excess" for Ethereum, such as pressure caused by token unlocking or miner selling. On the contrary, both staking and Layer2 growth have proven to be important and growing ways to consume ETH liquidity. Similarly, Joe Lubin also bluntly stated that compared with the approval of the Bitcoin spot ETF in January this year, the supply used to meet the needs of institutions to purchase ETH will be less, 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 staking 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%.
