The first deadline set by the United States Securities and Exchange Commission (SEC) to obtain
The SEC’s first deadline for a cash ETF is May 23.
Its approval will be a significant event not only for investors, but it could also represent a significant change in the status quo of cryptocurrency regulation in the United States. Many in the cryptocurrency community did not expect the SEC to approve an Ethereum (ETH) spot ETF. .
But SEC reports requiring updates from applicants and changes to filings from U.S. asset managers suggest an Ethereum spot ETF could ultimately be approved.
Sebastian Hein, head of risk and compliance at institutional partner Northstake, explained to Cointelegraph how the Ethereum Spot ETF “will be a game changer for the entire cryptocurrency ecosystem and traditional financial sectors.”
ETF analysts Eric Balchunas and James Seyfart believe the SEC could make a 180-degree turn in favor of the ETF, although this issue has become “increasingly a political issue.”
What are the expected impacts if the spot ETF is approved?
Will ETFs increase the price of ETH?
There is a widespread belief among cryptocurrency investors that the price of ETH will rise thanks to Ether spot ETFs, as this will open the door to a new influx of funds from investors in traditional markets. Hine said:
“The approval of the ETH ETF will not only be positive for Ethereum, but also for the entire cryptocurrency market, especially in the United States, which has the largest pool of capital in the world.”
Hein noted that the more than 20% rise in the price of ether the day before the ETF deadline “demonstrates the large amount of money waiting on the sidelines, ready to pounce on any significant catalyst.”.
Solo Ceesay, a former investment banker at Citibank, told Cointelegraph that he believes Ethereum’s peak “underestimates” the potential inflow Ethereum could receive, as big funds have not yet reached the Ethereum market.
Sesay explained that the potential is huge, because “the ETF allows people with large sums of money who were previously prohibited from investing in assets to get into the game now.”
But there could be a decline. “The approved ETH exchange-traded fund has not yet been properly evaluated,” Basil Ismail, CEO of investment analytics firm Blockcircle, told Cointelegraph.
Related: Debate over Ether security continues as SEC decision deadline approaches.
Ismail expects a “short-term” decline similar to that following the approval of Bitcoin ETFs.
Peter M. Moric, head of partnerships at Bridge DLC.Link and a former derivatives trader, told Cointelegraph that when the immediate approval of the ETH ETF is announced, an event of buying rumors and selling news will follow.
Nick Cowan, CEO of fintech company Valereum, agreed there could be a pushback. “High volume moves are often followed by a sideways move or reversal followed by a sell-off on the news,” he told Cointelegraph.
Cowan described how “retail buyers will accumulate FOMO, giving large institutional owners the opportunity to dump their holdings.” He said big investors need big news to change their big positions.
“The challenge is still how much power retailers have to maintain price levels once FOMO is over.”
The Grayscale Ethereum Trust (ETHE) “still controls (over) $10 billion worth of ETH,” Ismail said.
As with spot Bitcoin ETFs, Grayscale’s “management fees are exorbitant” and ETHE is expected to provide “significant outflows for some time until its fees are reduced to be competitive with alternative market options.” .
Sisay agrees with Ismail that the market “will definitely see a more pronounced downward slide.”
However, he believes inflows into ETFs will have a bullish impact on Ethereum’s price, similar to how BlackRock’s Bitcoin (BTC) ETFs provided enough demand to push Bitcoin to all-time highs.
“Institutional money will flow more slowly into the ETH ETF discovery than into the BTC ETF,” Moric said, primarily due to institutional investors’ perception of Ethereum.
“The value proposition of Ethereum is definitely different from Bitcoin,” Manuel Villegas, digital assets specialist at Julius Baer Private Bank, told Cointelegraph.
Villegas explained how Bitcoin “quickly found its place in the context of institutional investors’ investment portfolio, whether as a yield enhancer, store of value, or alternative asset with diversification potential.”
But as Moric notes, “describing ETH is more complex because there are many more use cases.”
For Ethereum to receive consistent flows from the spot ETF, its regulatory classification needs to become clearer so that institutional investors feel more comfortable investing in it.
Approval of ETFs Could Mark Change in U.S. Regulations
No decision comes in a vacuum.
Cryptocurrency lawyer Jake Chervinsky said the move was politically motivated and pointed out that cryptocurrencies have won the political battle in recent months.
The Senate’s recent vote to repeal the SEC’s banking rule — which many believe would stifle cryptocurrency innovation — “may have helped shift sentiment toward faster approval of the spot ETF ETH,” Moric said.
Former President Donald Trump’s sudden change in stance on cryptocurrencies and open criticism of President Joe Biden and SEC Chairman Gary Gensler’s approach to cryptocurrencies could also have an impact on the regulatory body.
Sisay believes that Trump’s support for the cryptocurrency industry could force “the loosening of the SEC’s grip on the asset class.”
It appears that the SEC may attempt to classify Ethereum as a security, whereas in past lawsuits the Commodity Futures Trading Commission (CFTC) has classified it as a commodity.
This inconsistent classification by U.S. regulators, the argument goes, has led to jurisdictional conflicts between agencies and made it difficult for businesses to expand.
For compliance manager Hein, “the approval will signal a crucial change in the regulation of cryptocurrencies, highlighting the move towards acceptance and integration.”
The SEC is the regulatory entity responsible for immediately approving Ethereum ETFs. Therefore, Hine believes that approval “would represent a major shift in their position, and perhaps signal an end to the current destructive strategy of regulation by enforcement.”
What’s next after spot ETFs are approved?
Cryptocurrency markets tend to be driven by anticipation of an upcoming event. So when or if spot ETFs are approved, what happens next?
Some participants in cryptocurrency markets, such as DeFi investor Cyril, who runs the Telegram channel Wealth Craft, said the markets may not have a successful event to look forward to.
Conversely, Ismail believes that immediate approval of the ETF could lead to new events with “several key beneficiaries”.
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In his opinion, “the doors will be reopened to competing and integrated first layers, second layers and sidechains, which will then move on to more speculative altcoins.”
According to Ismail, there could also be future crypto ETFs including assets held in Grayscale’s existing pseudo-ETFs. He said the industry could see ETF products with XRP (XRP), Cardano (ADA), Polkadot (DOT) and more.
