Recently, the main discussion point in the cryptocurrency space has been the approval of exchange-traded funds (ETFs) based on the spot Ethereum price made by the US Securities and Exchange Commission (SEC).
This topic causes large interest not only in the cryptocurrency markets but also in the ones working with traditional finance. The issuers have been given prior approval on their ETFs include BlackRock, Grayscale, Fidelity, and VanEck, among others.
Ethereum ETF preliminary approval
The crypto community had been looking forward to that SEC decision since the likely impact of it on the market would be substantial to say the least. Last week, the products in question were approved but only preliminary so far. The final decision of the SEC is expected to be announced during the upcoming meeting in early June. While so far, the regulator has greenlighted the so-called 19b-4 forms tied to the ETFs, they still need to okay the S-1 filings submitted regarding the same products.
If the decision is positive, this will mark a major milestone for the second biggest digital currency by market cap – Ethereum – and support the bullish rise in the crypto market that has already started after the spot Bitcoin ETFs were approved in January.
The issue here is that in his interviews right before the preliminary approval and also after it, the head of the SEC Gary Gensler did not clarify the official position of the regulator on Ethereum. Namely, whether it is still considered a commodity or whether it will be labeled as a non-registered security, similarly to ADA, SOL, BNB and all other altcoins.
ETH price remains unfazed
Currently, traders are watching the situation with cautious optimism. Even though the first approval has taken place, the market has not experienced any notable rise. Still, everybody remembers that when the regulatory agency approved the Bitcoin ETFs at the start of the year, the Bitcoin price began pumping a few weeks after that.
Should the Ethereum funds get approval, a similar impact on the market is expected by analysts, even though the scale of the Ethereum price boost may be quite different to that brought by the Bitcoin ETFs. Many experts, including Bloomberg analysts, believe that the demand for spot Ethereum funds will be much lower than that for Bitcoin-based ones. What one can be certain of is that a potential positive outcome on the Ethereum ETFs is likely to give both retail investors and financial institutions a broad exposure to ETH.
As was in the case of the Bitcoin funds, this approval may bring a drastically high demand increase for the second major cryptocurrency and push its price to new peaks. Currently, since the ETH price is hardly moving, this may indicate that traders have chosen to watch what will happen next and they are not rushing to start accumulating the crypto in large quantities.
Potential aftermath of ETF approval
Exchange-traded funds would make it easier to invest in ETH, since retail traders and institutions would be able to buy shares that track the spot Ethereum price and they would do that on conventional stock exchanges. They will be able to avoid all the hardships of holding crypto directly – remembering the seed phrases, worrying about security measures, worrying whether to hold it in a cold wallet, on an exchange or use services of a custody provider.
However, aside from giving a bigger exposure to a wide range of investors, an approval of spot Ethereum funds is expected to give Ethereum some sort of legitimacy as was in the case of Bitcoin. It may attract those investors who hesitate to buy crypto directly not only for the above said reasons but also for fear of investing into a “doubtful” asset. However, an approval of ETFs would solve that problem. One of the examples of this is news that has been spread recently about American pension funds starting to purchase spot Bitcoin-based products.
It is worth mentioning that prior to the first approval, the Ethereum ETF issuers updated their filings and removed Ethereum staking from them. This was done since the SEC is currently leading legal suits against two major US cryptocurrency exchanges – Coinbase and Kraken – suing them over their products which offer crypto staking. All altcoins involved in those services have been proclaimed to be securities by the regulator. The ETF issuers made sure their Ethereum funds would not fall under this category.
Some experts, however, strongly believe that a potential Ethereum ETF approval would prove to be a sell-the-news event. Among them is Thomas Fahrer, co-founder of Apollo, who stated recently that an approval may cause a bloodbath for Ethereum. He mentioned Grayscale Ethereum Trust which they aim to convert into a spot ETF. Once an approval takes place, investors’ ETH will be unlocked and they will be able to withdraw and sell it as it happened when the company converted its Bitcoin Trust into a spot ETF.
Overall, Bitcoin started rallying two months later after the ETF approval. Many experts believe that Ethereum may show a similar reaction.
