Ethereum Spot ETF Officially Approved by SEC for Listing
On July 23rd, according to official SEC information, multiple ETF issuers have received formal approval for their S-1 applications, with the Ethereum spot ETF officially approved for trading. Initial trading is expected to commence tomorrow.
According to the notification, SEC has informed at least two out of the eight companies applying to launch the first Ethereum spot ETFs in the US that their products can begin trading on Tuesday. Products from BlackRock, VanEck, and six other companies will start trading Tuesday morning on three different exchanges: the Chicago Board Options Exchange (CBOE), NASDAQ, and New York Stock Exchange, all confirming readiness to begin trading.
This marks another significant milestone for the crypto industry, with institutional players and analysts expressing their views. Coinbase, a cryptocurrency trading platform, stated that today the US Securities and Exchange Commission (SEC) approved applications for 9 Ethereum spot ETFs. Following the SEC’s approval of a spot Bitcoin ETF in January, the approval of an Ethereum spot ETF signifies another important milestone for cryptocurrency, reflecting ongoing innovation and a maturing regulatory environment around crypto assets. Coinbase has also become a trusted partner and custodian for 10 Bitcoin spot ETFs and 8 newly approved Ethereum spot ETFs.
Bloomberg ETF analyst Eric Balchunas commented on social media, “Jay Jacobs, head of thematic and active ETFs at BlackRock US, suggested in a video aimed at the general public that while many see Bitcoin’s main appeal in its scarcity, Ethereum’s appeal lies in its utility. Ethereum can be viewed as a global platform for applications that operate without decentralized intermediaries.”
London-based investment firm Farside Investors released a report stating, “We believe inflows into Ethereum ETFs may be lower than Bitcoin ETFs for several reasons: Bitcoin ETFs gained attention first, the market for exchange-traded products (ETPs) was larger for Bitcoin before US spot ETF approval, Ethereum ETFs lack staking functionality which makes them relatively less attractive, and Bitcoin has stronger financial asset correlation while Ethereum focuses more on decentralized applications (dApps) and on-chain usage.”
Market maker Wintermute estimates that Ethereum ETFs could attract up to $4 billion in inflows from investors over the next year. Wintermute predicts that with these inflows, Ethereum’s price could rise by as much as 24% over the next 12 months.
At the time of writing, Ethereum is priced at $3,445 with a 2.5% decrease in the last 24 hours, and the positive impact of the Ethereum spot ETF approval seems to have been anticipated in advance.
Ten years ago on July 22, 2014, Ethereum officially launched its ICO fundraising campaign, raising funds by preselling ETH tokens, totaling 31,529 BTC at a rate of 1 BTC for 2000 ETH, raising over $18 million at the time’s market price.
Just two months ago, Ethereum spot ETFs saw a dramatic increase in approval rates from a dismal 7% to 75% overnight, with the SEC approving multiple Ethereum spot ETFs on May 24th, including proposals from BlackRock, Fidelity, and Grayscale.
Today, the Ethereum spot ETF has been officially approved for listing, and exchanges like CBOE, NASDAQ, and NYSE are prepared for Ethereum spot ETF trading.
What challenges did the Ethereum spot ETF overcome?
Securities Attributes and Proof-of-Stake Concerns
Over the past six months, the approval progress of Ethereum ETFs has been a concern for the community, with several negative viewpoints addressed following this approval. Unlike Bitcoin ETFs, the approval path for Ethereum ETFs faced significant obstacles.
Due to Ethereum’s ICO in 2014, where funds were raised, ETH may be viewed as an asset with securities attributes. Additionally, with no theoretical cap on supply under the Proof-of-Stake (PoS) mechanism, ETH issuance is related to network activity, and the actions of large holders can affect ETH price fluctuations. According to Glassnode statistics, nearly 55% of ETH supply is held by 1041 addresses, which can significantly influence Ethereum’s network upgrades and operations.
This has led the SEC to believe that Ethereum’s high concentration of holders increases the risk of market manipulation. Galaxy Digital’s Head of Research, Alex Thorn, previously held a pessimistic view on the approval of Ethereum ETFs based on this.
According to Alex’s report, after Ethereum transitioned to the Proof-of-Stake (POS) governance model in September 2022, the SEC initiated an investigation into the Ethereum Foundation, based in Switzerland.
Proof-of-Stake, while addressing Ethereum’s energy inefficiencies by using a model dependent on a network of trusted validators, also provided the SEC with a new reason to attempt to define Ethereum as a security.
As a compromise, companies applying for ETFs such as Ark Invest, 21Shares, and BlackRock have removed the staking component from their ETF proposals, stating they will not pledge part of the trust’s assets. This measure reduces the risk of ETH being viewed as a security, as staking may involve expectations of future returns, a characteristic of securities.
Precursors to Hong Kong Ethereum spot ETFs
Reflecting on this year’s cryptocurrency market trends, Ethereum has appeared relatively weak compared to Bitcoin’s strength. While Hong Kong gradually adopts a more crypto-friendly policy stance, its approval of Ethereum spot ETFs ahead of the US has provided a significant boost to Ethereum.
On April 15, 2024, the Hong Kong Securities and Futures Commission officially announced the list of approved virtual asset spot ETFs, including Bitcoin and Ethereum spot ETFs under Huaxia (Hong Kong), Capital International, and Boshi International.
These six spot ETF products were offered for subscription from April 25 to 26, 2024, and were listed on the Hong Kong Stock Exchange on April 30, marking the first listing of Ethereum spot ETFs on a major exchange.
Currently, Hong Kong’s spot cryptocurrency ETFs are mainly issued synchronously by Huaxia Fund (Hong Kong), Boshi Fund (International), and Capital International, including Boshi HashKey Bitcoin ETF (03008), Boshi HashKey Ethereum ETF (03009), Huaxia Bitcoin ETF (03042), Huaxia Ethereum ETF (03046), Capital Bitcoin Spot ETF (03439), and Capital Ethereum Spot ETF (03179).
In community research and analysis, Hong Kong’s earlier approval of Ethereum spot ETFs compared to Europe and the US is attributed not only to its flexible regulatory environment and open attitude towards financial innovation but also to strong market drive, geographical and strategic advantages, and early seizing of pricing power.
Initially, many community members were not optimistic about this development, viewing it as having little market impact. However, the SEC’s dramatic shift in attitude towards Ethereum, approving VanEck’s application, even if only through Form 19b-4, does not guarantee final ETF approval. Nevertheless, in such a volatile market, any positive factor can be seen as a significant victory. Perhaps, as Kong Jianping, director of Hong Kong Cyberport, said, “Hong Kong’s first approval of Ethereum ETF is a lifeline for Ethereum.”
What impacts will the Ethereum spot ETF approval have?
The approval of the Ethereum spot ETF may have come unexpectedly, unlike the Bitcoin spot ETF, where investors began positioning six months before approval, leading to massive capital inflows. Nonetheless, for the cryptocurrency industry, Ethereum’s spot ETH approval remains a milestone event, laying a positive foundation for future development.
Is there hope for altcoins?
The immediate impact of spot ETF approval will be seen in prices. Bitcoin saw a 75% increase post spot ETF approval, and a similar impact on Ethereum’s price can be anticipated following the approval of its spot ETF. However, the news of Ethereum ETF approval did not immediately shake the altcoin sector, which saw a slight decline compared to the previous days.
Geoff Kendrick, Head of FX Research and Digital Asset Research at Standard Chartered Bank, said, “Following approval, we expect the Ethereum spot ETF to attract 2.39-9.15 million ETH inflows in the first 12 months post-approval.” He added, “In dollar terms, this roughly equates to $150 billion to $450 billion in assets.”
Kendrick further commented, “Given our current view that Bitcoin could reach $150,000 by the end of 2024, this implies Ethereum could reach $8,000.”
Aside from impacting ETH prices, the Ethereum spot ETF will also have a positive effect on the altcoin market. As the vast majority of altcoins in DEX use ETH as a trading pair, an increase in ETH will lead to passive gains in altcoins.
Furthermore, some market perspectives suggest that with the approval of the Ethereum spot ETF, there is strong reference value for future cryptocurrency ETF applications.
Could crypto regulation policies change?
Another significant impact of the approval of the Ethereum spot ETF is reflected in a shift in US regulatory attitudes towards crypto policies.
As the US election unfolds, the inclinations of both the Democratic and Republican parties towards the crypto industry are worth monitoring.
Previously, former Speaker of the US House of Representatives Nancy Pelosi was considering supporting the FIT21 crypto bill, a Republican-backed bill, during this week’s House vote. Additionally, there is also a resolution pending on SAB121, an accounting standards bill for cryptocurrencies.
Following the approval of the Ethereum spot ETF, mainstream market views suggest a positive impact on the regulatory environment for cryptocurrencies.
Previously, Galaxy Digital’s Head of Research, Alex Thorn, stated that the SEC’s regulatory stance on Ethereum would try to strike a balance between Ethereum itself not being a security and “staked ETH” (or more tenuously, “staked ETH as a service”) being considered a security.
This is very similar to the demands in the FIT21 bill, which aims to clarify which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which by the Securities and Exchange Commission (SEC).
This distinction is crucial as the definitions of “commodity” and “security” have significant regulatory implications.
In conclusion, as a category of cryptographic assets with smart contracts, the approval of the spot ETF for Ethereum is expected to have profound implications for the cryptocurrency industry.