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What the SEC’s decision to approve Spot Ether ETFs means
Key points
- The Securities and Exchange Commission (SEC) on Thursday approved a rule change that will allow spot ether exchange traded funds (ETFs) to be listed in the future.
- However, due to remaining regulatory steps in the process, the new ETFs will likely not be available for trading until July or August.
- The SEC approval, which seemed unlikely a week ago, could signal a positive change in the regulatory environment for the cryptocurrency industry in the United States
- Fund inflows into these new Ether products may be limited by the lack of access to staking that rewards users for their liquidity.
The U.S. Securities and Exchange Commission (SEC) surprised market watchers on Thursday when it took effect approved the list of spot ether exchange traded funds (ETFs) on American stock exchanges. Ether is the underlying cryptocurrency Ethereum crypto network, the second largest such network after bitcoin by market capitalization.
What will be the impact of this historic regulatory decision on the cryptocurrency market?
Spot Ether ETFs may not be listed for months
While Thursday’s decision to approve the spot ether ETF Forms 19b-4 on the part of issuers hoping to launch the funds was a big step forward, associated products in the works from BlackRock, Grayscale, Fidelity and others cannot yet be listed.
This is because the S-1 Registration Documents Requests submitted for these products must also be approved, which could take weeks to months. According to a report from Galaxy Digital, July or August are the most likely months for spot ether ETFs to start trading.
The SEC’s change of heart
The SEC’s recent breakthrough in approving applications for spot ether ETFs was not predicted by many before some major developments earlier this week. The SEC had done it asked spot Ether ETF applicants to make changes to their documents in an expedited manner as deadlines for the agency’s decisions on them were approaching.
It seems that behind the scenes there has been a policy reversal SEC, which in the cryptocurrency industry is considered political in nature. An unidentified source told crypto publication The Block that the decision represents “a completely unprecedented situation, which means it is entirely political,” due to the lack of internal coordination between SEC departments on the issue.
In early May, former President Donald Trump in a speech courted the cryptocurrency industry that the Biden administration has moved to regulate, in contrast to Trump’s criticism of cryptocurrencies during his presidential term.
The SEC’s recent decision on spot ether ETFs could also have implications for the cryptocurrency industry in general. While Republicans have generally been receptive to cryptocurrencies and blockchain technologyespecially in terms of bitcoin, Democrats have mostly been seen as opponents of the technology.
Democrats, led by the Biden administration, taking a softer regulatory approach on cryptocurrencies could mean more companies and projects related to the sector may consider the United States as a base of operations.
Additionally, the ETF’s immediate decision on Ether could have implications for Ether’s status as a security, which is a legal avenue the SEC was exploring. According to Bloomberg analyst James Seyffart, with these recent approvals the SEC explicitly states that ether is not a security, as future ETFs are defined as commodity-based fiduciary shares.
How will these ETFs affect the price of Ether?
Ether is up about 20% this week, but opinions differ on how much the price can go higher. While bitcoin has benefited greatly from the approval of Spot Bitcoin ETFWith these products having seen inflows of around $13 billion since their approval in January, it’s unclear whether Wall Street will have a similar appetite for ether.
Specifically, futures-based ether ETFs it hasn’t gained much traction following their launch in 2023.
Additionally, the existence of a legacy ether fund from digital asset manager Grayscale could limit inflows into new ETFs in the near term. as was the case with a similar bitcoin product. That said, some analysts, like Lekker Capital founder Quinn Thompson, still think spot ether ETF approvals could help the alternative crypto asset outperform bitcoin.
One of the key limitations of spot ether ETFs, at least for now, will be their lack of access episode. Ether can be staked on the Ethereum network to participate in the consensus and validation process, similar to the proof-of-work mining process in bitcoin.
Stakers are rewarded with transaction fees and newly issued ether, which allows them to earn a return on their ether in exchange for their liquidity. Since ether held by ETF issuers cannot be staked, opting for a spot ether ETF instead of an alternative option to buy into the cryptocurrency will incur a huge opportunity cost.