The White House just did a 180 on its stance on cryptocurrencies, and now is the time to pay attention!
The past 10 days have been extremely important for the cryptocurrency industry, with significant developments on the legislative and regulatory fronts.
And the Ethereum ETF is just part of it.
Before we talk about those, though… let’s talk about ETFs.
And discuss the following:
How come everyone got it wrong?
Last week, our take on the Ethereum ETF was simple: the market was too pessimistic.
“There are reasons to believe the market may be underestimating the chances of passage.”
This is an asymmetric bet:
Due to the overwhelmingly negative sentiment, the downside risk for Ethereum appears to be quite limited, while the potential upside (ETH was trading around $2,900 last week) is very attractive.
Ethereum has risen nearly 30% in a week to $3,750.
As of this writing, Polymarket’s betting markets now give the ETF a 65% chance of approval—a stunning reversal from just a 10% chance just last Friday.
How we judge
On Monday, for example, traditional financial markets showed bullish signs.
The discount window of Grayscale's closed-end fund ETHE is closing, indicating that the traditional financial community has become bullish on Ethereum ETFs.
Once an Ethereum ETF is approved, this discount will disappear.
On Monday, the discount was 25%. Today? Just 6.6%.
Most people overestimate the likelihood that the SEC will take tough action against Ethereum. (There are a number of reasons for this, including the SEC’s approval of Ethereum futures late last year.)
The dramatic changes in ETFs are just the tip of the iceberg.
There were also several major cryptocurrency developments in Washington, D.C. last week.
White House U-turn
A major victory last week was the repeal of the SEC's Staff Accounting Bulletin No. 121 (SAB 121).
The obscure accounting rule, introduced by SEC Chairman Gary Gensler, makes it difficult for U.S. companies to keep custody of crypto assets.
The repeal bill passed the Senate in a 68-30 vote, with support from 21 Democrats who departed from the Biden administration's position.
The bill now awaits a decision from President Biden, who will either allow it to pass or veto it.
He promised to veto it. So he might veto it.
But that doesn't matter.
Biden will not veto this bill
Perhaps the most important event of the week was the vote on the Financial Innovation and Technology for the 21st Century (FIT21) Act.
Here’s why this is important:
The bipartisan legislation, championed by pro-cryptocurrency Representative Patrick McHenry, seeks to provide much-needed regulatory clarity to the cryptocurrency industry.
The main provisions of the Act include:
Defines “digital asset” under federal law for the first time.
Clarify the SEC and Commodity Futures Trading Commission (CFTC) jurisdiction over digital assets.
Establish a decentralized test to determine whether a digital asset is a commodity or a security. (It is estimated that more than 60% of cryptocurrencies would be considered commodities.)
Providing a path for startups to transition from centralized to decentralized networks.
Representative McHenry emphasized the importance of the bill for consumer protection, promoting innovation, and providing regulatory clarity.
The vote on the FIT21 bill was seen as a test of Congress’ support for cryptocurrencies.
This week is the most important week in the history of cryptocurrencies…
