The crypto industry has completed another step towards mainstream acceptance as spot Ethereum exchange-traded-funds (ETFs) have been approved by the Securities and Exchange Commission (SEC). But how is this approval different to Bitcoin’s in January?
On 23 May 2023, the SEC approved a spot Ethereum ETF meaning that, to begin with, certain investment firms could now offer an ETF of the cryptocurrency. While the SEC still needs to sign off on registration statements for VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy, and Bitwise, in theory, it shouldn’t be long before these firms can start officially trading Ethereum ETFs.
Interestingly the news comes at a time when the regulator is deciding whether to classify the digital asset as a security. Furthermore, the approval follows more news in the crypto world as the United States House of Representatives voted in favour of legislation to provide greater regulatory clarity over digital assets.
Eric Demuth, co-founder and CEO of Bitpanda, the trading platform, explains how these discussions fit within the larger picture of cryptocurrencies’ global acceptance: “The SEC’s approval of the ETH spot ETF, after months of politically driven objections, was overdue but is very welcome. Despite the SEC’s stance that ETH is somehow a security, we are seeing another key part of the crypto industry unlocked for institutional investors.
“It’s yet another sign of how the crypto industry is changing and another step towards crypto rightly being treated the same as any other asset class. This approval means new institutional investors from the US, less volatility, and more evidence for crypto’s long-term future in the world of finance. But let’s be honest: Even a rejection would not have changed much about the positive future for ETH and the entire crypto space.”
Another milestone in one year?!
Earlier this year, the crypto industry rejoiced as the US regulator announced a huge milestone that many had been calling for: Bitcoin ETFs. As a result of this move, US investors, both institutional and retail, could track the movements of Bitcoin and make purchases without having to set up an account or digital wallet with an unregulated exchange.
With the newly approved Ethereum ETFs, we set out to find out if this has solidified cryptocurrencies as a legitimate investment recognised by the masses, or if they are still viewed as a niche and dangerous investment.
Reacting to the SEC’s first stage approval, Alex Saleh, head of partnerships at Coincover, the blockchain protection company comments: “This is a welcome surprise given the challenges of the Bitcoin ETF approvals and the SEC’s historical hostility towards crypto. The US is the largest market for ETFs in the world, and where the US moves, others usually follow.
“The launch of Ethereum ETFs still needs to go through a second stage of approval, but if given the green light, would represent a major vote of confidence in the role that digital assets will play in our financial system and open the floodgates to more of these products.”
More exposure
Saleh continues: “The SEC’s move is another sign of the growing appetite for crypto ETFs and could introduce fresh demand pressure on Ethereum spot prices, since exposure to Ethereum would be opened to a wider pool of investors.
“With that said, there is still a lot of uncertainty on the timing of when Ethereum ETF products will hit the market, and which market players will be participating. This uncertainty makes it difficult to predict any changes in demand for the underlying asset that will lead to further price discovery.”
“This is an exciting moment for the crypto community, but there are still risks that come with any new financial instrument. Volatility is a given, and widespread adoption of Ethereum ETFs would lead to fund managers accumulating large amounts of Ethereum across a range of custody methods. This will be a prime target for hacks, attacks, and possible human error. We anticipate greater expectations around risk mitigation and security capabilities, meaning security is paramount and must be a top priority for ETF managers.”
Following in the footsteps of the Bitcoin ETF
Daniel Seifert, UK country director of Coinbase, the global crypto exchange notes how this approval further roots cryptocurrencies in the mainstream world of investing. He says: “Coinbase welcomes this ETF approval and believes it will have a similar, positive impact on the industry, as experienced upon the approval of BTC ETFs.
“This move solidifies the fact that cryptocurrency is not merely a trend, representing a global transition towards digital assets in order to reshape the existing financial system. The expansion of crypto’s utility will have significant effects on innovation, and we expect to see an escalation of activity in the market. Coinbase is excited to serve asset managers with the full suite of Prime products and further the positive impact on the industry.”
A good step in the right direction but we need to be cautious
Mona El Isa, founder of Avantgarde Finance, a crypto asset management firm, explains that while this is a good move for the crypto industry, an ETF takes away some of what makes Ethereum Ethereum.
She explains: “The approval of the Ethereum ETF is a positive development, boosting institutional demand as it is packaged in a way that traditional investors understand. However, the risks lie in the details of how these ETFs will implement, monitor, and manage risk, especially if they involve staking Ethereum.
“The centralised nature of these funds contradicts the ethos on which the asset class was built. Owning an ETF makes your investment purely speculative and ironically removes some of the key features that originally drove the popularity of cryptocurrency.
“There are also concerning centralisation risks in the current Ethereum staking landscape that need addressing. The top three staking pools control over half the total stake, with a measly 9% left for truly decentralised options. Lido dominates liquid staking with 85% of the market. It’s clear we urgently need new on-chain, decentralised staking alternatives to break up these monopolies.
“While ETFs may boost institutional demand short-term, the space must solve these centralisation issues to maintain crypto’s value proposition long-term. The rushed ETF timing also seems more politically motivated than grounded in addressing these crucial risks.”
