Regulators have moved away from Ethereum (for now), which many observers believe could give the asset room to grow.
On June 19, 2024, the United States Securities and Exchange Commission (SEC) officially closed its investigation into whether Ethereum (ETH) should be classified as a security.
Cryptocurrency markets won’t see “further protests from the SEC that ETH is a security,” said Consensys attorney Laura Brookover.
However, Carol Goforth, a professor at the University of Arkansas School of Law who specializes in trade associations and securities regulation, explained to Cointelegraph that “all the ruling means is that At this point, the SEC will not continue its investigation.” This is not a final decision.
Consensys believes that the SEC’s withdrawal of its investigation into Ethereum removed a significant burden that threatened the network’s survival.
The SEC’s “significant” turnaround has eased negative regulatory concerns surrounding ETH as a security, but how will the ETH price react to a clearer trajectory? The SEC investigation also affected cryptocurrencies with similar attributes to Ethereum, so which altcoins could benefit from Ethereum’s liberalization?
Observers say ether price set to rise
The price of Ethereum has remained relatively stable since the SEC halted its investigation, following the horizontal trend that has continued since the instant approval of the Ethereum ETF was announced on May 23.
At press time, Ethereum was down 2%. This led some traders to wonder if ETH would rise and the altcoin market would follow.
Other market observers say there is great potential for future growth.
Conor O’Neill, community leader and partner at investment analytics firm Blockcircle, told Cointelegraph that a “major regulatory hurdle” for Ethereum had been removed and that it “sets an important precedent for regulators around the world.
The SEC’s closure of the investigation “removes a significant element of risk and uncertainty for any investor.” O’Neill believes that the price of Ethereum is about to rise:
“It is difficult to imagine a scenario, short of a catastrophic global event, that would prevent the price of Ethereum from rising significantly from its current level.”
There are other things to consider as well.
The planned launch of ETH exchange traded funds on July 2 will undoubtedly have an impact on the price of ETH. As was the case when Bitcoin (BTC) ETFs launched in the United States in January, traditional markets are expected to begin injecting capital into ETFs, thereby increasing demand for Ethereum and increasing its price.
The ETH ETF “is very likely to have a long-term positive impact on the price of Ethereum,” O’Neill explained.
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In the short term, “we could see a sell-off event similar to what we saw when Bitcoin ETFs were approved.” He said a pullback is expected in the near term as some of this news will be priced when ETFs begin trading.
Although the approval of the ETH ETF is positive news for the cryptocurrency markets, partner Blockcircle highlighted that the SEC approved the ETFs under certain conditions.
ETF issuers cannot offer staking ETFs. That’s because, Goforth explained “The SEC alleged that the signing itself implied an investment contract.” Remove the possibility of offering additional winnings to holders.
O’Neill believes that if the SEC maintains strict regulatory oversight of digital assets while completely opposing collectability, it could harm the long-term performance of ETH as an institutional asset, and thus have a negative impact on its price.
Some have also questioned whether Grayscale releases, as in the case of the Bitcoin ETF, could impact the price of ether after the ETF launch. The Grayscale Ethereum Trust, worth over $10 billion, could start seeing significant outflows after the launch of ETH ETFs. This may affect the price of ETH, as it did for Bitcoin.
O’Neill explained that outflows from Grayscale have far outpaced inflows into new Bitcoin ETFs due to high management fees.
However, he pointed out that Grayscale’s fees for its Ether fund have been reduced to levels similar to other Ether ETF providers.
In his opinion, this indicates that Grayscale does not want to repeat the launch of the Bitcoin ETF and believes that the amount of ETH held by Grayscale “will likely increase significantly with the launch of the ETF.”
O’Neill predicted that Ethereum would follow a “similar path to the price of Bitcoin, with a decline followed by a massive rise.”
However, he highlighted a central difference between an ETF and a Bitcoin ETF: the surprise impact of a surprise approval.
“Given that many market commentators did not expect Ethereum to be approved, there may be reason to highlight Ethereum’s price suppression. This would require a bullish scenario for Ethereum price, in which it outperforms Bitcoin.
Ether price has a clear path forward as one of the main fundamental arguments against it has been removed. If ETH goes up, will altcoins follow?
Altcoin prices may benefit indirectly
When the price of Bitcoin increases, it creates a positive effect on the entire cryptocurrency market. Likewise, this happens in the altcoin market when Ether rises.
So, which altcoins can benefit from following the latest news?
The SEC’s termination of the investigation could be linked to other altcoins that the agency has accused of being securities.
The Securities and Exchange Commission has opened cases against cryptocurrency exchanges Binance and Coinbase for various securities law violations. The Securities and Exchange Commission (SEC) has designated several altcoins as securities, including Solana (SOL), Cardano (ADA), and Polygon (MATIC).
O’Neill believes that projects like Aave or Chainlink from the decentralized finance (DeFi) sector, or layer two chains like Arbitrum, Optimism or Base could benefit from the SEC’s pushback.
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However, O’Neill noted that many of them offer staking capabilities and are not yet completely exempt from SEC scrutiny.
The SEC’s position could change dramatically as the US presidential election approaches, with Donald Trump calling for pro-crypto measures.
The future of SEC Chairman Gary Gensler will be uncertain, as will the regulator’s opposition to staking. Some even predict that altcoin ETFs could hit the market.
The surprise approval of Ethereum ETFs, the growing number of ETF issuers, and the withdrawal of the SEC investigation indicate a potential shift in the SEC’s approach. These changes represent a pivotal moment for Ethereum and the broader cryptocurrency market.
