IC0 After ten years, the Ethereum spot ETF has officially been approved for listing

Author: BlockBeats

On July 23, according to official information from the SEC, it has officially approved the S-1 applications of multiple ETF issuers, and the Ethereum spot ETF has been formally approved for listing and trading, with initial trading expected to begin tomorrow (Tuesday morning, U.S. time, Tuesday evening Beijing time).

According to the notification, the SEC has informed at least two of the eight companies applying to launch the first U.S. spot Ethereum ETFs that their products can begin trading on Tuesday. Products from BlackRock, VanEck, and six other companies will start trading on three different exchanges on Tuesday morning: the Chicago Board Options Exchange (CBOE), the Nasdaq, and the New York Stock Exchange, all of which have confirmed they are ready to begin trading.

This represents another milestone achievement for the cryptocurrency industry, and institutions and analysts in the crypto space have expressed their views.

The cryptocurrency exchange Coinbase officially stated that today, the U.S. Securities and Exchange Commission (SEC) approved the applications for nine spot Ethereum ETFs. Following the SEC's approval of the spot Bitcoin ETF in January this year, the approval of the spot Ethereum ETF marks another significant milestone for cryptocurrencies, reflecting ongoing innovation around crypto assets and an increasingly mature regulatory environment. Coinbase has also become a trusted partner and custodian for ten spot Bitcoin ETFs and eight newly approved spot Ethereum ETFs.

Bloomberg ETF analyst Eric Balchunas posted on social media, "BlackRock's U.S. thematic and active ETF head Jay Jacobs stated in a video introducing Ethereum to the general public that while many believe Bitcoin's main appeal lies in its scarcity, many others believe Ethereum's appeal lies in its utility. You can think of Ethereum as a global platform for running applications without the need for a centralized intermediary."

London-based investment management firm Farside Investors released a report stating, "We believe that the inflow of funds into the Ethereum ETF may be less than that of the Bitcoin ETF for the following reasons: the Bitcoin ETF was approved first, attracting more attention; before the approval of U.S. spot ETFs, the market size of Bitcoin exchange-traded products (ETPs) was larger than that of Ethereum; the lack of staking functionality makes the Ethereum ETF relatively less attractive; Bitcoin has a stronger correlation as a financial asset, while Ethereum focuses more on decentralized applications (dApps) and on-chain usage."

Market maker Wintermute believes that the Ethereum ETF could attract up to $4 billion in inflows from investors within the next year. Wintermute expects that, driven by these inflows, the price of Ethereum could rise by as much as 24% in the next 12 months.

As of the time of writing, the price of Ethereum is $3,445, with a 24-hour decline of 2.5%. The positive news regarding the approval of the spot ETF for Ethereum seems to have been priced in ahead of time.

Ten years ago, on July 22, 2014, Ethereum officially launched its ICO financing, raising funds through the pre-sale of ETH, totaling 31,529 Bitcoins (at an exchange rate of 1 Bitcoin for 2,000 Ethereum), which, based on the market price at the time, amounted to over $18 million.

Two months ago, the approval rate for the Ethereum spot ETF skyrocketed from a mere 7% to 75% overnight, following the SEC's approval of multiple Ethereum spot ETF 19b-4 forms, including those from BlackRock, Fidelity, and Grayscale, on May 24.

Today, the Ethereum spot ETF has officially been approved for listing and trading, with the Chicago Board Options Exchange (CBOE), the Nasdaq, and the New York Stock Exchange all prepared to trade the Ethereum spot ETF.

What Challenges Did the Ethereum Spot ETF Overcome?

Securities Attributes and POS Concerns

Over the past six months, the approval progress of the Ethereum ETF has been a concern for the community. After this approval, previous negative viewpoints have been addressed one by one. Unlike the Bitcoin ETF, the path to approval for the Ethereum ETF faced numerous obstacles.

Due to Ethereum's ICO in 2014, which raised funds, this financing behavior could lead to ETH being viewed as an asset with securities attributes. Additionally, since Ethereum theoretically has no total supply limit, under the PoS mechanism, the issuance of ETH is related to network activity, and the behavior of large holders could cause price fluctuations. According to previous statistics from Glassnode, nearly 55% of ETH supply is held by 1,041 addresses, which can significantly influence the upgrades and operations of the Ethereum network.

This has led the SEC to believe that the high concentration of ETH holders increases the risk of market manipulation. Alex Thorn, head of research at Galaxy Digital, has previously expressed a pessimistic view on the approval of the Ethereum ETF based on this.

According to Alex's report, after Ethereum transitioned to a new governance model called "Proof of Stake (PoS)" in September 2022, the SEC opened an investigation into the Ethereum Foundation, which is based in Switzerland.

"Proof of Stake," while helping Ethereum escape the flaws of energy waste by using a model reliant on a trusted validator network, in fact provided the SEC with a new excuse to attempt to define Ethereum as a security.

As a compromise, companies applying for the ETF, such as Ark Invest, 21Shares, and BlackRock, have removed the staking component from their ETF proposals, indicating that they will not stake 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 profits, which is a characteristic of securities.

Prelude to Hong Kong's Ethereum Spot ETF

Looking back at this year's cryptocurrency market, Ethereum appears very weak compared to Bitcoin's strength. Its price and growth rate cannot compete with Bitcoin, nor can it match altcoins. During this period, Hong Kong has gradually shifted to a more crypto-friendly policy stance, allowing its Ethereum spot ETF to be approved ahead of the U.S., which brings significant benefits to Ethereum.

On April 15, 2024, the Hong Kong Securities and Futures Commission officially announced the list of approved virtual asset spot ETFs, including the Bitcoin spot ETF and Ethereum spot ETF from Huaxia (Hong Kong), Harvest International, and Bosera International.

These six spot ETF products opened for subscription from April 25 to 26 and were listed on the Hong Kong Stock Exchange on April 30, marking the first time Ethereum spot ETFs have landed on a major exchange.

Currently, the Hong Kong spot cryptocurrency ETFs are mainly issued simultaneously by Huaxia Fund (Hong Kong), Bosera Fund (International), and Harvest International, including Bosera HashKey Bitcoin ETF (03008), Bosera HashKey Ethereum ETF (03009), Huaxia Bitcoin ETF (03042), Huaxia Ethereum ETF (03046), Harvest Bitcoin Spot ETF (03439), and Harvest Ethereum Spot ETF (03179).

In community research and analysis, the reasons for Hong Kong approving the Ethereum spot ETF earlier than Europe and the U.S. are attributed not only to its flexible regulatory environment and open attitude towards financial innovation but also to strong market drivers, geographical and strategic advantages, and the initiative to seize pricing power.

Although initially, many community members were not optimistic about this matter, believing it had no effect from a market perspective, now the U.S. SEC's significant shift in attitude towards Ethereum by approving VanEck's application, even if only through the 19b-4 filing, does not guarantee the final approval of the ETF, but in such a crazy market, any positive factor can be seen as a huge victory. Perhaps, as Hong Kong Cyberport director Kong Jianping said, "Hong Kong's early approval of the Ethereum ETF is a lifeline for Ethereum."

What Impact Will the Approval of the Ethereum Spot ETF Have?

The approval of the Ethereum spot ETF may come as a surprise, differing from the Bitcoin spot ETF, where investors began positioning themselves six months before its approval, leading to large-scale inflows. However, for the crypto industry, the approval of the Ethereum spot ETH remains a milestone event, and its impact lays a positive foundation for the future development of the crypto industry.

Are Altcoins Saved?

The most direct impact of the approval of the spot ETF will be reflected in the price. Bitcoin has risen by 75% since the approval of its spot ETF, and the impact of the approval of the Ethereum spot ETF on ETH's price can be seen. However, the news of the Ethereum ETF's approval did not immediately shake the altcoin sector, which has seen a slight decline compared to previous days.

Geoff Kendrick, head of foreign exchange research and digital asset research at Standard Chartered Bank, stated, "After approval, we expect the spot Ethereum ETF to drive the inflow of 2.39 to 9.15 million Ethereum in the first 12 months post-approval." He added, "In dollar terms, this is approximately equivalent to $15 billion to $45 billion in assets."

Kendrick further noted, "Given that we now see Bitcoin reaching $150,000 by the end of 2024, this implies that Ethereum's price will reach $8,000."

In addition to impacting the price of ETH itself, the Ethereum spot ETF will also have a positive effect on the altcoin market. Since the vast majority of altcoins in DEXs are traded against ETH, an increase in ETH will lead to a passive increase in altcoins.

Furthermore, some market opinions suggest that with the approval of the Ethereum spot ETF, there is strong precedent for future applications for ETFs for more cryptocurrencies.

Possible Shift in Crypto Regulatory Policies

Another significant impact of the approval of the Ethereum spot ETF is the change in the attitude of U.S. regulatory agencies towards crypto policies.

As the U.S. election season begins, the tendencies of the Democratic and Republican parties towards the crypto industry are noteworthy.

Previously, former House Speaker Nancy Pelosi was considering supporting a Republican-backed crypto bill, FIT21, during a House vote this week. Additionally, a bill regarding cryptocurrency accounting standards, SAB121, is also expected to be resolved soon.

After the approval of the Ethereum spot ETF, mainstream market views suggest that this has a positive impact on the regulatory environment for cryptocurrencies.

Previously, Alex Thorn, head of research at Galaxy Digital, indicated that the SEC's regulatory stance on Ethereum would attempt to find a balance between the two, namely that "ETH" itself is not a security, while "staked ETH" (or more tenuously, "staked ETH as a service") is a security.

This is very similar to the demands in the FIT21 bill, which clarifies which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which are regulated by the Securities and Exchange Commission (SEC). This distinction is crucial because there are key differences between the definitions of "commodities" and "securities," which will affect their regulatory approaches.

In summary, as a category of crypto assets with smart contracts, the approval of the spot ETF will undoubtedly have a profound impact on the crypto industry.