It goes without saying that cryptocurrency and digital asset adoption has reached an inflection point. The recent approval of several Bitcoin Spot ETFs in the United States marked a significant milestone for Bitcoin and the entire crypto market as a whole.
Last year, we speculated on the prospect of these approvals and what impact it could have on the markets.
Since the approvals in January, the cryptocurrency markets have entered a raging bull market with increased deliberation among the mainstream media. This week, we see yet another turning point towards widespread adoption with the chatter of the SEC (Securities and Exchange Commission) potentially approving several Ethereum Spot ETFs amidst a political backdrop in the US that is becoming increasingly crypto-friendly.
Even though rumors of the Ethereum Spot ETF have been floating around for months, it wasn’t until this week when real traction grew. The SEC began actively engaging with issuers and national exchanges, mirroring the approach taken prior to the approval of the Bitcoin Spot ETFs. This blog explores what an approval could bring to Ethereum, altcoins and the cryptocurrency sector as a whole over the short term and long term.
If they approve the Ethereum ETF, they are approving the entire industry. This is the last dam to be broken.
— Pomp (@APompliano) May 21, 2024
The SEC’s Stance on Ethereum
The second largest cryptocurrency, Ethereum, has been in the crossfire with the United States’ SEC for years. Ever since Ethereum’s transition from proof of work (PoW) to proof of stake (PoS) in 2022, the SEC under the helm of Gary Gensler has been maneuvering to classify Ethereum as a security rather than a commodity. Shortly after the Merge, Gary Gensler stated that tokens in a PoS consensus system could be considered securities since investors rely on the efforts of others to make a profit.
Classifying Ethereum as a security poses significant drawbacks for the crypto market. Such a designation would subject Ethereum to stringent regulatory requirements, potentially stifling innovation and deterring investment.
The increased compliance costs and legal uncertainties could hinder the development of decentralized applications (dApps) and other blockchain-based technologies built on the Ethereum network.
Furthermore, it might prompt exchanges to delist Ethereum to avoid the complexities of trading securities, reducing its liquidity and accessibility for investors. This regulatory shift could create a ripple effect, impacting the broader crypto ecosystem and slowing the adoption of blockchain technology.
In early 2024, the SEC began investigating Ethereum, issuing subpoenas to U.S. entities connected to the Ethereum Foundation. This move raised questions about whether it is part of a broader effort to classify ether as a security, possibly slashing hopes that the regulator will approve Ethereum Spot ETFs. Until last week, this mounting bearish stance pushed the odds of an Ethereum spot ETF being approved to 10%.
Over the past week, however, the SEC has seemingly done a 180 on their stance on Ethereum. On Monday, news that the SEC had informed exchanges the agency was leaning towards approving Ethereum spot ETFs shook the world of cryptocurrencies.
Possible Impact of an Approval
Price Appreciation
While the decision on the Ethereum Spot ETF’s to be authorized is still pending, it is interesting to speculate on some of the scenarios that could take place. One such is an Ethereum price surge. This scenario has in fact already taken place. Since the news broke, Ethereum’s price rallied a staggering 20% in a single day.
Some on twitter are also of the opinion that the news has not been priced in. Others view the break of structure as an indicator of the start of a longer-term parabolic bull market.
To understand market sentiment and the characteristics that typify a crypto bull and bear market, read this article: Bull and Bear Markets Explained: A Guide to Maximizing Profits in Crypto
The ETH ETF is not priced in.
— Ran Neuner (@cryptomanran) May 21, 2024
#Altcoins $ETHIs #Ethereum on the verge of a parabolic run?-Bounce on the blue line as in 2020-Are we in the yellow zone, as in 2020?So far, everything has been almost identical.The next few months could be life changing if we repeat the structure.Don't mess it up. pic.twitter.com/pGeUezpeMb
— 𝕄𝕠𝕦𝕤𝕥𝕒𝕔ⓗ𝕖 (@el_crypto_prof) May 22, 2024
Even though predicting short term price swings can be difficult, the recent surge in Bitcoin’s price following its ETF approvals may signal similar trends for Ethereum.
An Altcoin Season
An approval of Ethereum Spot ETFs could potentially trigger an altcoin season by significantly boosting investor confidence in the broader cryptocurrency market. Ethereum, as the second largest cryptocurrency by market capitalization, holds a pivotal role in the crypto ecosystem. Its recognition and validation through a spot ETF would likely attract a wave of institutional and retail investment.
This influx of capital could not only drive up the price of Ethereum but also increase interest in other altcoins, as investors look to diversify their portfolios and capitalize on the broader market momentum.
Historically, major developments and positive regulatory news for bluechip cryptocurrencies like Bitcoin and Ethereum have had a cascading effect, lifting the entire market.
Read this article for an introductory guide on what altcoins are and their different types: A Brief Overview of Altcoins: What are Their Types, Pros and Cons
Moreover, an Ethereum Spot ETF approval could pave the way for a broader trend of crypto ETFs gaining regulatory approval. Established protocols like Solana are already being speculated as the next candidates for such recognition.
JUST IN: Ethereum ETF applicants submit amended 19b-4's • VanEck• Fidelity • Franklin • ArkInvest• Grayscale• Invesco Galaxy
— Watcher.Guru (@WatcherGuru) May 21, 2024
A better trade I will argue for is: "BUY SOL/ETH". This may sound absurd and definitely unpopular. Reasons are:1) SOL will be the No.1 next in line if ETH ETF get approved. 2) ETH/BTC did +12% within a week after the BTC approval as people expect ETH ETFs3) Not a crowded trade
— Daniel Yan (@_D_Y_A_N) May 21, 2024
Increased Institutional Adoption
One possible scenario following the approval of an Ethereum Spot ETF is a significant increase in institutional adoption of Ethereum. With a spot ETF, traditional financial institutions such as mutual funds, pension funds, and hedge funds would have a regulated and accessible way to gain exposure to Ethereum without the complexities of directly purchasing and storing the cryptocurrency.
This could lead to a substantial influx of institutional capital into the market, which would not only drive up the price of Ethereum but also enhance its legitimacy as a mainstream investment asset.
We have already seen this play out with the Bitcoin ETFs with large hedge funds accumulating the digital asset at unprecedented rates.
A Process, NOT an Event. The "institutions" have been coming to #Bitcoin since at least 12/2017 when CME futures But the ETFs have really accelerated this. the 5th largest hedge fund Millennium Management is now holding almost $2 Billion of #BTC and they are not alone:… pic.twitter.com/1slcemaYjO
— Mark Moss (@1MarkMoss) May 16, 2024
Easier Accessibility
Ethereum Spot ETFs will significantly enhance accessibility for people interested in investing in cryptocurrencies without having to navigate the complex technicalities of the Web3 ecosystem.
Traditionally, investing in Ethereum requires a basic understanding of setting up crypto wallets, managing private keys, and purchasing the asset via cryptocurrency exchanges—all of which can be challenging for those unfamiliar with this space. With the introduction of Ethereum Spot ETFs, investors can bypass these hurdles.
Read this article for an end-to-end guide on cryptocurrency wallets: Cryptocurrency Wallets: Explained
These ETFs, traded on traditional stock exchanges, offer a familiar and regulated investment vehicle that simplifies the process. This ease of access means that anyone with a brokerage account can gain exposure to Ethereum just as easily as they would with stocks or conventional ETFs.
The availability of Ethereum Spot ETFs will diversify the investor base by attracting people who use legacy investment platforms. By offering a product that fits within the existing framework of traditional finance, Ethereum Spot ETFs open the market to a broader audience, including institutional investors, retirement funds, and everyday individuals who prefer the security and simplicity of regulated financial products.
Closing Thoughts
The prospect of an Ethereum Spot ETF approval stands to significantly shake up the crypto sector, with both short-term and long-term implications. The approval of Ethereum Spot ETFs would mark a pivotal step towards mainstream adoption and integration of cryptocurrencies into the global financial system.
While the decision for approval remains to be seen at the time of this writing, the mere possibility and the precedent set by approved Bitcoin ETFs speak volumes about the progress and maturation of the cryptocurrency industry since its inception 15 years ago.
The journey of digital assets from a niche investment opportunity to a significant component of the financial landscape underscores its transformative potential and the capacity to redefine financial paradigms.