This year, Ethereum undoubtedly has the strongest counterattack script.

Just a few days ago, the price of Ethereum weakened significantly, falling below $2,900, and the ETH/BTC exchange rate hit a three-year low. At that time, the market had a rather tasteless attitude towards Ethereum, and compared with Bitcoin, Ethereum was once widely shorted. The core reason is ETF. In view of the SEC's continuous review of the Ethereum Foundation and the tough attitude of the SEC Chairman, the market generally predicted that the Ethereum spot ETF would have no hope of passing.

On May 21, the market staged an extreme reversal. It was reported that the Ethereum spot ETF was expected to be approved. Ethereum was hit hard and rose by more than 20% overnight, approaching $3,800. The broader market followed suit, and Bitcoin once again approached $71,000. The altcoin sector stopped its decline and rose by 10%. Subsequently, good news came frequently, the SEC urged the submission of materials, and VanEck and other institutions rushed to work overnight. Everyone in the market was holding their breath waiting for the first deadline of the Ethereum spot ETF.

The facts are just as the market expected. On May 24, according to official documents, the U.S. Securities and Exchange Commission (SEC) has approved the plans of the New York Stock Exchange, the Chicago Board Options Exchange, and Nasdaq for spot Ethereum ETFs, namely the issuer's Ethereum spot ETF 19b-4 (exchange rule change) application.

Although it has not yet been officially listed, it is just one step away. The Ethereum spot ETF has taken a big step forward and injected a new shot in the arm to the long-dormant market.

Looking back at the approval process of the Ethereum spot ETF, it can be said to be a bumpy road.

On September 6, 2023, VanEck and 21Shares&ARK were the first to submit applications for Ethereum spot ETFs to the SEC. Subsequently, Ethereum spot ETFs ushered in a intensive wave of institutional applications. Hashdex, Grayscale, Invesco&Galaxy, Fidelity, and BlackRock submitted applications one after another, while Franklin and Bitwise were relatively conservative and only applied after February of this year after the approval of Bitcoin spot ETFs, becoming the last echelon in the application queue.

Due to the smooth approval of the Bitcoin spot ETF, during the initial approval period, although the SEC postponed the application as usual, the market had high expectations for it. The reason is that the Ethereum futures ETF was approved in October 2023 and listed as a regulated futures contract on the Chicago Mercantile Exchange. Therefore, it is difficult for the SEC to reject the spot ETF for different reasons, otherwise it will attract lawsuits from institutions. Eric Balchunas, an analyst at Bloomberg who was once highly praised for his prediction of the Bitcoin ETF, said in February this year that the probability of the Ethereum ETF being approved is 70%.

However, at that time, some institutions such as JPMorgan Chase expressed opposition, believing that due to the properties of Ethereum, the ETF was unlikely to be approved in May. And since February, things have indeed taken a sharp turn for the worse.

First of all, there is the tough attitude of the SEC. As we all know, the SEC and the CFTC have been arguing over whether Ethereum is a security, especially after the switch to POS. Even in an interview in March, SEC Chairman Gary Gensler did not clearly express his opinion. On March 20, according to the GitHub repository, the Ethereum Foundation said it was facing inquiries from unnamed "national authorities". At that time, there was market news that this agency was the US SEC. Although the Ethereum Foundation argued that it had not received any inquiries, it still cast a shadow of doubt on the market. The next day, Fortune also published an article saying that the SEC was investigating Ethereum in depth, confirming the SEC's intentions.

In April of the following year, the SEC issued Wells warnings to decentralized Defi projects, and projects such as Uniswap and Consensys were frequently hit, causing market panic. According to documents, Gensler, chairman of the US SEC, has believed that Ethereum is a security for at least a year, and as early as March 28, 2023, Gurbir Grewal, head of the US Securities and Exchange Commission's enforcement division, approved a formal investigation order into the status of Ethereum as a security, authorizing law enforcement officers to investigate and subpoena individuals and entities involved in the purchase and sale of Ethereum tokens.

Against this backdrop, the approval rate of the Ethereum spot ETF has plummeted, and the market has begun to become pessimistic. Bloomberg analysts who previously published forecasts have even lowered the chance of approval for the Ethereum spot ETF to 25%. Standard Chartered Bank, which once insisted that the approval date would be May 23, has also changed its tune and argued that the approval date may be delayed.

Another piece of evidence is the issuer. Four people familiar with the matter revealed that U.S. issuers and other companies expect that the U.S. Securities and Exchange Commission (SEC) will reject the application for the Ethereum spot ETF because the docking discussion with the SEC was not smooth. The SEC did not discuss the implementation details of the financial product, which was in sharp contrast to the previous intensive and detailed discussions on the Bitcoin spot ETF.

It is precisely because of these news that by May, the market had almost no hope for Ethereum to be approved. Analyst James Seyffart even said that he attended a blockchain summit in Washington, and almost everyone he talked to believed that the ETF would be rejected. Against this background, the price of Ethereum continued to weaken, funds were siphoned to the Bitcoin side, and the ecosystem did not make significant progress. The altcoins that obviously followed the Ethereum market performed even more bleakly. The prices of altcoins newly listed on Binance this year were almost halved.

But on May 21, Ethereum staged a Jedi counterattack.

On May 21, two Bloomberg analysts suddenly posted on the X platform, saying that the probability of Ethereum's approval has risen to 75%, and stated that "the SEC may make a 180-degree turn on the Ethereum spot ETF (more of a political issue), and this possibility is related to the approval of 19b-4. It is expected that the US SEC will make a decision on the VanEck spot Ethereum ETF on May 23."

Following CoinDesk’s news that “SEC requires exchanges to speed up the update of 19b-4 applications”, Ethereum rose by more than 20% overnight and led the broader market to continue to soar, once again demonstrating its leadership in the broader market.

The fact is exactly the same. On May 23, the SEC announced that it had approved the 19b-4 (Exchange Rule Change) applications of eight spot ETFs. From the perspective of exchanges, VanEck, 21Shares, Invesco, and Fidelity chose to list on the CBOE exchange, while Hashdex and BlackRock continued to list on the Nasdaq exchange, and Grayscale listed on the New York Stock Exchange. The documents show that, in line with the Bitcoin ETF, the Ethereum spot ETF also still chooses the cash subscription and redemption model, rather than the physical subscription and redemption compatible with Hong Kong.

But it is worth noting that even if 19b-4 is approved, it does not actually mean that the Ethereum spot ETF has been passed, but it is indeed infinitely close to the process. From the approval process, 19b-4 and S-1/S-3 are both the approval process of the US SEC for ETFs. ETH spot ETF applicants must disclose detailed information about the ETF in S-1 or S-3 forms, but before S-1/S-3 forms, ETH spot ETF applicants must obtain 19b-4 approval, that is, the issuer ETF can be listed on the relevant exchange and ensure that reasonable rules have been formulated and implemented to prevent manipulation, fraud and unfair trading practices. In short, 19b-4 is the industry standard for ETF issuers, but it is still necessary to pass S-1/S-3 before officially opening trading on the exchange.

From the audit point of view, 19b-4 is a procedural audit, and the SEC needs to intervene in the investigation to verify the authenticity and validity, while the S-type form is a formal audit, which only ensures the completeness of the information. Therefore, generally speaking, the approval difficulty of 19b-4 is higher than that of the S-type form. Currently, S-3 is the procedure that Grayscale needs to be approved, while S-1 is the approval requirement of other application agencies. From the time point of view, after the approval of 19b-4, the review period of the S-type form is 60-120 days, and the shortest review time is only 1 day. However, in theory, the SEC can also review the S-type form indefinitely. For reference, during the approval process of the Bitcoin spot ETF, the SEC spent nearly 4 months reviewing and revising the S-1 form.

Therefore, the approval of this time does not mean that the dust has settled on the Ethereum spot ETF, and there are still weeks or even months of expectations. However, from the perspective of the significance of the approval, the approval of 19b-4 has a far-reaching impact on the market. First, it is a regulatory signal. The approval of Ethereum directly recognizes its legitimacy and publicity, and eliminates the historical burden of its securities attributes. It symbolizes a turning point in the openness of US regulation, and other decentralized projects are expected to usher in regulatory relief; second, it is a market signal. At a time when capital flows continue to siphon to Bitcoin, Ethereum, as an important infrastructure in crypto-native, has an obvious impact on the market due to the weakening price effect. If Ethereum welcomes capital intervention growth, projects based on Ethereum are also expected to usher in growth again, and the bull market will continue, promoting the vigorous development of Ethereum and even the crypto ecosystem. It can be considered that from the perspective of ecological response alone, the price spillover effect brought about by the approval of the Ethereum ETF will be higher than that of Bitcoin.

In addition, due to the SEC's restrictions on pledges, the current approved applicants such as BlackRock, Grayscale, Fidelity, ARK Invest and 21Shares have deleted the pledge statements in their documents. From this point of view, the spot Ethereum ETF will not have a pledge function. In this regard, some market participants also said that the Ethereum ETF that has lost the pledge function is not as good as directly buying the Bitcoin ETF, let alone directly buying ETH. But in fact, before the ETF was approved, some fund institutions and banks found it difficult to directly hold Ethereum positions for policy reasons. Therefore, if this ETF is approved, it will also directly broaden the funding channels and bring in a large amount of institutional capital flow.

Looking further into the reasons for Ethereum's reversal, the industry consensus is that it is more of a political consideration. The current SEC chairman is under the Democratic Party led by Biden, and industry insiders believe that this policy shift means that the United States' attitude towards crypto regulation has undergone a major change.

This year, during the US election, Trump has repeatedly called on the crypto community to vote and accepted cryptocurrencies as funding. But before that, Biden's side has always been tough. Just before that, the SEC's 2022 accounting bulletin (SAB121) repeal plan was passed by the House of Representatives and the Senate, becoming the first crypto bill submitted to the president, but Biden's side openly expressed opposition, saying that the resolution affected the SEC's normal law enforcement, and if the president received the resolution, he would reject the proposal.

Due to the tough attitude, party aides suggested to Biden that the regulation of the crypto industry should be reversed in a timely manner to win crypto votes. The reason is that data shows that in several key swing states such as Arizona, Michigan, Montana, Nevada, Ohio and Pennsylvania, about 18% of voters hold digital assets.

Of course, judging from the voters alone, it is actually quite far-fetched. After all, encryption is a niche. According to the latest survey by the Federal Reserve, the number of Americans using cryptocurrency has dropped from the initially estimated 50 million to 18 million, and only 1% of adults said they use cryptocurrency as a payment method or remittance. From a certain perspective, there are only a million people who actually hold cryptocurrency and care about voting, and they are scattered in 52 states. For the 160 million American voters who adopt the electoral college system, the influence is slightly mediocre. But from market news, the Biden campaign team is planning to attract young voters by hiring "MEME managers". Since encryption is an important manifestation of the spirit of Generation Z, it may inevitably be an important channel for this plan.

In addition to the votes, some people also analyzed that Wall Street is the core reason. Bitwise once published an article pointing out that Chuck Schumer, a Democratic congressman and Senate Majority Leader, had cast an important vote in favor of the SAB121 repeal bill, and behind him were Wall Street supporters. In addition to Schumer, 10 other Democratic members in the Senate also voted in favor of the proposal, and 21 Democrats in the House of Representatives also voted in favor, reflecting that even within the party, there are quite a few differences on encryption. Wall Street institutions are obviously eyeing the high returns brought by the cryptocurrency field, and the president's attitude has failed to change the infiltration of Wall Street within the party.

As things stand, the Ethereum ETF has inadvertently become the winner of the partisan struggle. If things continue to develop in this way, Biden is very likely to pass the SAB121 repeal bill on May 28. This also means that the market will see other regulators change their attitudes in the coming months, and the subsequent passage of the 21st Century Financial Innovation and Technology Act may also bring new hope.

In any case, an important milestone for the Ethereum spot ETF has been set, and it is only a matter of time before it passes without any surprises. The period of waiting for the S-1 form to be approved will become a period of price accumulation for Bitcoin and Ethereum. Of course, due to scale allocation reasons, the size of the Ethereum ETF is expected to be significantly lower than that of BTC. Balchunas predicted that the asset size of the Ethereum ETF will only be 10%-15% of that of Bitcoin. At the same time, due to the Grayscale Convertible ETF, the market will inevitably usher in a wave of selling pressure on Ethereum, but in the long run, the price effect of institutional entry cannot be underestimated.

In the macro direction, although the Fed’s May meeting minutes released a few days ago still showed a strong attitude, the market generally predicts that there may be two interest rate cuts this year, and the first rate cut is very likely to come in September. If it is as expected by the market, the crypto circle, which is highly dependent on liquidity, will also usher in a new round of rising expectations. With the superposition of liquidity and ETFs, the real bull market may really be coming.

Interestingly, when Ethereum was at a low point, Sun Yuchen continued to buy large amounts and became the largest ETH holder. According to data from the on-chain analyst Ember, Sun Yuchen currently holds 665,000 ETH (about $2.447 billion), of which 390,000 (US$1.435 billion) were purchased at an average price of $2,984 between the end of 2023 and the end of April this year. Did Sun Ge get inside information again? This is unknown.

Currently, Bitcoin and Ethereum are trading at $67,830 and $3,792 respectively, down 0.22% and 0.11% in 24 hours.