Author: Slobodzeanb
Translation: Blockchain in Vernacular
Spot Bitcoin ETFs have been around for quite some time, accumulating a large amount of Bitcoin and showing unexpected trading volumes. As of July 2024, US spot Bitcoin ETFs hold $50 billion in BTC, with an average daily trading volume of $100 million.
Naturally, asset managers like BlackRock and Fidelity make hundreds of millions of dollars in fees from these ETFs, and they want to make more. That’s why we witnessed a truly legendary event in May 2024 — the government approved a series of spot Ethereum ETFs!
In this article, we will look at how the approval of these financial instruments will affect the crypto market, and Ethereum in particular.
1. The U.S. Securities and Exchange Commission (SEC) approved the listing of the trading platform of the spot Ethereum ETF
On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) approved several securities trading platforms to list and trade spot Ethereum ETFs. Prior to this, the United States only approved the trading of Ethereum futures ETFs.
Before we go any further, let’s look at what exactly an ETF is.
An ETF, or exchange-traded fund, is an investment product traded on a stock exchange, similar to individual stocks. It holds assets and usually operates an arbitrage mechanism so that its trading price is close to its net asset value.
In simple terms, an ETF is an investment fund that buys an asset (like gold, Bitcoin, Ethereum) and issues shares based on its total valuation.
Investors who are unable to hold the underlying asset simply purchase shares of the ETF, which generally mirror the market performance of the underlying asset.
The Ethereum ETF will be traded on three major U.S. stock exchanges:
New York Stock Exchange Arca: Grayscale Ethereum Trust and Bitwise Ethereum ETF
Nasdaq: BlackRock iShares Ethereum Trust
CBOE BZX: VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund, and Franklin Ethereum ETF
The CBOE-listed ETFs will go live on July 23, while the remaining ETFs have not yet announced a launch date. In the meantime, asset managers are deciding on fees and seed investments.
Currently, the "fee war" is still going on, with Franklin Templeton disclosing a fee of 0.19% and VanEck disclosing a sponsorship fee of 0.2%. As the largest player in the field, BlackRock is expected to announce a sponsorship fee of less than 30 basis points.
In terms of seed investments, Grayscale and Invesco Galaxy both disclosed $100,000 in seed share purchases, while Fidelity put in $4.7 million. BlackRock reported $10 million in seed funding for its ETF.
2. Ethereum ETF Approval: An Industry Game Changer?
The approval of an Ethereum ETF has many benefits for the industry, but perhaps the biggest is the suggestion that ETH is a commodity rather than a security.
The SEC has been going back and forth on the status of certain cryptocurrencies (such as ETH, BNB, XRP, SOL), trying to determine whether they are securities or commodities.
In recent years, Gary Gensler, one of the main opponents of cryptocurrency, has been avoiding the question of whether ETH is a security, but we do know that the SEC has attempted to classify Proof of Stake tokens as securities based on the Howey test.
Now, with the approval of these Ethereum ETFs, the SEC did not explicitly state that Ethereum is a commodity. However, it defined these ETF products as "commodity-based trust shares." This wording largely calmed the debate over how to classify uncollateralized Ethereum.
Based on this classification, Coinbase (and potentially other companies in the future) appealed its case against the SEC.
Basically, the cryptocurrency trading platform pointed out the disagreement between lawmakers and the SEC over how to view its jurisdiction over cryptocurrencies. The SEC sued Coinbase last year, alleging that it operated as an unregistered securities trading platform, broker and clearing organization.
3. Benefits of Ethereum ETF
In addition to the political and legal benefits of an Ethereum spot ETF, ordinary investors can also enjoy the following three advantages:
Accessibility: Traditional investors who may not be willing to deal with the complexity of cryptocurrency trading platforms can now buy and sell Ethereum ETFs through their existing brokerage accounts. This eliminates the need for a cryptocurrency wallet and lowers the barrier to entry for the technology.
Legitimacy: The listing of an Ethereum ETF on a major securities exchange adds credibility and recognition to the entire cryptocurrency market. This recognition by traditional financial institutions helps bridge the gap between traditional finance and the emerging world of digital assets.
Liquidity: Through ETFs, increased participation from institutional and retail investors could significantly increase Ethereum liquidity, which means smoother trading and less volatility, benefiting everyone from individual traders to large funds.
4. The impact of Ethereum ETF on prices
The launch of an Ethereum spot ETF in the U.S. will undoubtedly have a huge impact on the price of the cryptocurrency in the short and long term. But how big will this impact be, and what level of volatility should we expect?
Bitwise pointed out that although the initial price fluctuations may be large due to the conversion of funds from Grayscale Ethereum Trust to ETF, the price of Ethereum may break through the $5,000 resistance level before the end of the year. This optimism is based on the expectation of large inflows of funds into the new Ethereum spot ETF.
These assumptions are based on historical data from the launch of Bitcoin spot ETFs in the U.S. The launch of Bitcoin spot ETFs has had a positive impact on the price of Bitcoin, which has risen 25% since January and more than 110% since the market began to anticipate the launch in October last year.
The impact on ETH may be more significant for several reasons. Currently, Ethereum’s short-term inflation rate is 0%, compared to Bitcoin’s 1.7% inflation rate at the time of the ETF’s launch. Limited supply and significantly increased demand means prices will rise in almost all cases.
Additionally, unlike Bitcoin miners, Ethereum stakers do not need to sell their holdings, with 28% of all ETH already staked and effectively out of circulation.
Other cryptocurrency analysis firms, including Steno Research and K33 Research, have also offered optimistic predictions for Ethereum. Steno Research predicts that Ethereum could reach $6,500 later this year, driven by ETF inflows and other favorable market conditions.
K33 Research predicts that $4 billion in inflows will occur within the first five months of trading, which could lead to the accumulation of 800,000 to 1.26 million ETH, leading to tight supply and rising prices.
5. XRP and SOL: Who is next?
The approval of Ethereum and Bitcoin spot ETFs clearly shows that financial regulators are beginning to recognize the legitimacy of cryptocurrencies.
With support from major asset managers like BlackRock and Fidelity, the next cryptocurrencies that could receive ETF approval are likely to be XRP and SOL.
Solana is a competitor to Ethereum and the fifth-largest cryptocurrency by market cap. Given the similarities between its underlying technology and Ethereum, many believe that it would be difficult for the SEC to reject Solana’s spot ETF now that Ethereum has been approved.
As of July 9, VanEck and 21Shares have applied for a Solana futures ETF, and Bloomberg analysts predict that applications for a Solana spot ETF will begin by mid-March 2025.
Ripple’s XRP is another strong spot ETF candidate. XRP remains a top 20 cryptocurrency by market cap and has strong underlying technology used by many large banks such as Santander and JPMorgan Chase.
The legal dispute between Ripple and the SEC over whether XRP is a security or a commodity will play a key role in determining its ETF eligibility.
Standard Chartered believes that Solana or Ripple will get a spot ETF by 2025:
“For other cryptocurrencies (such as SOL, XRP), the market will also look forward to their eventual ETF status, although this may be a story of 2025 rather than 2024.” - Geoffrey Kendric
6. Cryptocurrency drives mass adoption
After years of legal challenges and pushback from the SEC, the cryptocurrency industry appears to be getting a more favorable response from regulators.
The SEC’s softening stance, coupled with shifting attitudes among various politicians and parties, could herald a new era of acceptance for cryptocurrencies in mainstream finance.
Former President Donald Trump recently changed his stance on cryptocurrencies, expressing support on social media and even accepting cryptocurrency donations for his 2024 presidential campaign.
There is also speculation that the SEC’s recent decision to move forward with the approval of a spot Ethereum ETF was influenced by political pressure from President Biden’s administration.
Whatever the reason, it’s clear that no one wants to be left behind on the cryptocurrency wave, which bodes well for the future of the industry.
