In the past 48 hours, both the cryptocurrency market and the TradFi lobbying group were caught off guard by the sudden change. The U.S. SEC suddenly changed its position on the approval of the ETH ETF, suddenly requiring various ETF issuers to update their latest "19 b-4" filings and notify the NYSE and CBOE that these funds will be listed on the exchange, indicating that the possibility of the ETH ETF being approved is quite high.

In response, five institutions that applied to issue ETFs (Ark 21, Fidelity, Franklin Templeton, Invesco/Galaxy, VanEck) updated their 19b-4 filings in the past 24 hours. VanEck’s product has even been listed on DTCC under the name $ETHV. This progress is really too fast!

So what’s changed in the updated filing? ETF Analyst reports that, unsurprisingly, the SEC asked all issuers to remove all references to ETH staking, as this is the agency’s main argument for ETH being a security, so ultimately the underlying assets of the ETH ETF may not be “staking for profit,” but what if it’s packaged through a centralized exchange, or done through a third-party platform willing to pay interest on deposits? How will the final S-1 document describe it? This industry is still the most advantageous for lawyers!

ETH of course surged on the news, surging 25% from $3,100 to $3,750 in less than 2 days. ETH has performed relatively poorly over the past 2 years, and has significantly lagged behind BTC over the past year, facing falling fees, competition from L1-EVM, and an over-focus on complex liquidity staking and re-staking, taking away the original "sound money" narrative of Ethereum before POS. Today, similar to the approval of the BTC ETF, the entry of the "TradFi bigwigs" is once again expected to be the catalyst Ethereum needs to get out of the trough.

Unlike in January, the market now has a playbook for how these ETF launches will play out, or at least a precedent to look to:

  • Since the approval of the BTC ETF in January, Bitcoin prices have been increasingly driven by the speed of inflows into the TradFi ETF

  • BTC's correlation with macro factors and even Nasdaq is much higher than in previous cycles

  • BTC experienced a rapid bullish cashing out in January, falling from around $57,000 to around $50,000, and the subsequent accumulated capital inflows quickly pushed the price to a new high of over $72,000. Will market participants behave in the same way this time?

  • Given that ETH is so unpopular, have native users accumulated enough ETH? Unlike the case of the BTC ETF, the possibility of the original ETH ETF being approved has long been in a "very small" state.

  • What impact will Grayscale's selling backlog combined with ETF inflows ultimately have on prices?

  • The circulating supply of ETH is much smaller than that of BTC, should we expect future net inflows/outflows of ETH to cause larger price fluctuations?

  • How aggressively will Larry Fink and Wall Street promote ETH this time?

  • As trading volumes continue to shift toward the U.S. time zone, will the influence of the U.S. market (which is at an all-time high year-to-date) continue to grow?

  • From a timeline perspective, there is still a long way to go before the final S-1 approval date. By the time the ETF is launched, will the macro environment (economy and interest rates) have changed significantly?

Speaking of changing macro factors, while the market awaits Nvidia earnings today, a host of Fed speakers have quietly but firmly changed their rate narrative once again, this time back to a hawkish stance. This week and the past week alone:

  • Fed Governor Waller: "Absent significant weakness in the job market, I would need to see several more months of good inflation data before I feel comfortable supporting an easing of the stance of monetary policy."

  • Vice President Jefferson: "It is too early to tell whether the recent deceleration in inflation will continue"

  • Vice President Michael Barr: "Inflation data for the first quarter of this year were disappointing. These results do not give me the confidence to support loosening monetary policy"

  • Atlanta Fed's Bostic: "I'm in no rush to cut rates... My forecast is that inflation will continue to decline this year until 2025," he added, however, that prices will fall more slowly than many expect.

  • Cleveland Fed's Mester: "My previous forecast was three (rate cuts), but based on what I'm seeing in the economy right now, I don't think that's still appropriate... I need to see a few more months of inflation data showing that inflation is falling"

  • San Francisco Fed's Daly: It's not clear whether inflation is actually receding, and there's no 'urgency' to cut rates

The SPX has gone 313 days without a one-day drop of 2%. The last time this happened was from 2016 to 2018, when the record was 351 consecutive days. The longest record was from 2003 to 2007, when there was no drop of more than 2% for about 3 years. No wonder everyone is selling volatility.

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