Sophia’s Thoughts On New Ethereum ETF Expectations
A single tweet yesterday triggered an Ethereum bull run. What’s behind this massive development?
These are Sophia’s Thoughts:
A couple of analysts posted on X that they are increasing their perceived probability that the SEC will approve spot Ethereum ETFs this week from 25% to 75%.
This ignited a bull run on Ethereum, pushing the price up by more than 20%. It also lifted the whole market, with Bitcoin trading above USD 70,000 again.
The key deadline for the SEC is this Thursday, May 23. That’s when the SEC needs to make a final decision on the VanEck Ethereum ETF application.
Considering the newest developments over the last two days, we are cautiously optimistic that the SEC will provide some form of approval this week.
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🚀 Last week’s market performance
Last week, the crypto market gained a staggering 15.3% while Bitcoin (BTC) climbed 13.4%. Pendle (PENDLE), a protocol that enables the tokenization and trading of future yield, led the market gaining 53.1% this week. The worst performing coin of the week was Render (RNDR), the distributed GPU rendering network built on Ethereum, which lost 3.5%.
🧐 What is your crypto mood today?
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💣 What Changed Yesterday?
On May 20th, the cryptocurrency market experienced a drastic shift following developments around the potential approval of an Ethereum (ETH) spot exchange-traded fund (ETF). Initially, the market had largely anticipated that the U.S. Securities and Exchange Commission (SEC) would reject the proposed spot ETH ETFs this week. This outlook changed dramatically when Bloomberg ETF analysts Eric Balchunas and James Seyffart increased their approval odds. They believe that the SEC could be reconsidering its stance on spot ETH ETFs.
The price of Ethereum responded immediately to this news, jumping over 20% to reach USD 3,800. Bitcoin also saw gains, rising over 8% to approach the USD 72,000 mark, before retracting back to USD 70,000 today. This optimism was further fueled by the SEC asking exchanges to update their 19b-4 filings on an accelerated basis which indicates a possible shift towards the approval of these applications ahead of a key deadline on the 23rd, later this week.
Grayscale’s Ethereum Trust (ETHE), which has been trading at a significant discount, surged more than 23% as investors speculated on the possibility of its conversion to a spot ETF being approved. The sudden increase in SEC engagement with exchanges is a clear signal that the regulatory landscape for Ethereum ETFs might be changing.
🇺🇸 Policy Movements
The unexpected progress towards the approval of an Ethereum spot exchange-traded fund (ETF) may be attributed to political shifts and legislative developments.
The Financial Innovation and Technology for the 21st Century (FIT21) is a new bill that has been making its way through the US Congress. It aims to clarify the roles of the U.S. Commodity Futures Trading Commission (CFTC) and the SEC in overseeing digital assets. This legislation has gained support, with the House of Representatives scheduled to vote on it this week. According to House Republicans, the bill is a critical step towards establishing a federal regulatory framework for digital assets, which has been a long-standing demand from industry advocates and lawmakers alike. While many expect that the bill will pass in the House, it is unclear whether it has enough support to pass the Senate as well and overcome a possible veto by President Biden. Still, some policy-makers have suggested that the Senate could be swayed.
The political climate surrounding cryptocurrencies appears to be shifting in front of our eyes. Companies including Coinbase, Kraken, Andreessen Horowitz, the Digital Currency Group, and roughly 50 others wrote to Speaker of the House Mike Johnson (R-La.) and Minority Leader Hakeem Jeffries (D-N.Y.), supporting the passage of the FIT21 bill. There also seems to be little appetite by some in the Government to push out a public crypto battle into the midst of election season in the US. In his tweet, Eric Balchunas alluded that the sudden change in the SEC’s position on ETH ETFs may be partially due to the issue becoming “increasingly political”. Similarly, crypto mogul and billionaire investor Mark Cuban suggested that opposing crypto is a losing battle for Democrats, especially with younger crowds. These shifts in sentiment may contribute to softening the SEC’s stance towards the Ethereum spot ETF applications.
🧠 Approval Nuances
The SEC needs to make a final decision on the VanEck Ethereum ETF application by May 23, 2024. But even if the SEC gives the green light, the ETF might not start trading immediately.
The approval process for ETFs involves several stages. Typically, the SEC’s approval process includes two main components: the 19b-4 filings and the S-1 applications. Exchanges and clearinghouses submit the 19b-4 filings to detail how the ETF will be listed and traded. Approval of these filings indicates regulatory acceptance of the product’s structure and trading mechanics. However, the S-1 applications are filed by the ETF issuers and they must also be approved before the ETF can be marketed and sold. The SEC may take weeks to months to review the S-1 filings. Even with approved 19b-4 filings, trading might not begin right away.
If the speculation about a 180-degree shift from the SEC on Ethereum ETFs is true, it is likely that the SEC will avoid having to take a stand on whether ETH is by itself a security. This approach would allow the SEC to approve Ethereum ETFs while maintaining their position in ongoing court cases against Coinbase and other exchanges. Because of the critical role that staking plays in the discussion about ETH’s status as a security, the SEC would likely prohibit the ETFs from engaging in staking.
There were several developments in the last two days surrounding the spot ETH ETF applications. First, the SEC requested expedited updates to 19b-4 filings. Then, several ETF providers also updated some of their S-1 filings to remove any references to staking. Because of these developments, we are growing more confident that the SEC is likely to provide a conditional approval for the spot Ethereum ETFs this week. This does not mean that we believe that the ETFs will begin trading this week. But it means that the barriers will be removed and we might see active spot ETH ETFs sooner rather than later.
Fidelity reportedly amends Ether ETF S-1 filing, removes ETH staking (Cointelegraph)
US SEC is asking for amended 19b-4 filings for spot Ethereum ETFs: reports (The Block)
SEC hints at last-second approval of Ethereum ETFs, but ‘no issuer is ready’ (Fortune)
The approval of spot ETH ETFs could bring significant new life into the crypto market before we enter the historically slow period over the summer months. Some analysts forecast a significant bull run when the spot ETH ETFs get approved. We remain cautiously optimistic.
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