Ethereum ETFs set for approval against the odds?
ETFs are often seen as the steady, reliable option in the investment world, recommended by financial advisors for their stability and broad market exposure. Instead of betting on individual stocks, investors can own a slice of an entire sector or the S&P 500. However, in the volatile world of cryptocurrencies, the emergence of ETFs has been nothing short of a seismic shift, reminiscent of the NFT craze of 2021.
The Journey of Crypto ETFs
The quest to introduce Bitcoin ETFs into traditional finance began in 2013 with the Winklevoss twins, famous from “The Social Network,” who were the first to apply to the SEC to create an exchange-traded asset tracking Bitcoin. Their application, along with many others that followed, was rejected until Grayscale won a landmark court case, forcing the SEC’s hand. This led to the approval of the first Bitcoin ETFs in January, causing a surge in crypto prices. Among the 11 approved Bitcoin ETFs, BlackRock and Fidelity’s offerings were particularly successful, marking a significant moment in crypto’s integration into mainstream finance. Despite their initial effort, the Winklevoss twins’ firm Gemini did not get an ETF, though it serves as a custodian for one.
Following Bitcoin’s success, Ethereum, the second-largest cryptocurrency, naturally became the next candidate for an ETF. Bitcoin’s triumph demonstrated that major investment managers, including hedge funds, were now more open to dipping their toes into crypto. An Ethereum ETF would solidify crypto’s acceptance as a legitimate asset class within traditional finance.
Regulatory Hurdles and Uncertainty
For a while, the prospect of an Ethereum ETF seemed bleak. Unlike Bitcoin, which U.S. regulators have classified as a commodity, Ethereum’s status has been contentious, with the SEC and CFTC debating whether it should be regulated as a commodity or a security. The SEC, led by the controversial chair Gary Gensler, hinted at treating Ethereum as a security, which would make an ETF for it unfeasible.
Every potential issuer I spoke with was convinced that the Ethereum ETF would be rejected. In April, Jan Van Eck, head of his eponymous firm, expressed doubts due to the SEC’s lack of engagement, suggesting that any progress would likely be halted. The expectation was that any rejection would lead to a lawsuit challenging the decision, similar to Grayscale’s approach with the Bitcoin ETF.
A Surprising Turn of Events
Despite the skepticism, some remained hopeful. Dave LaValle, the global head of ETFs for Grayscale, remained optimistic even when pressed about the likelihood of another legal battle. He advised waiting for the SEC’s decision, saying, “I quit my day job of predicting what the SEC is going to do.”
In a surprising twist, the SEC changed its stance just before the deadline for a decision. They began engaging with issuers and exchanges about listing the products. Some speculated that this shift was influenced by political victories for the crypto industry in Congress, such as the House’s approval of a comprehensive regulatory bill with bipartisan support. Regardless of the reason, the SEC approved all eight Ethereum ETF applications on Thursday. Although there are still a few final steps to be taken, trading is expected to commence in the coming weeks.
A Milestone Year for Crypto
This approval caps off a remarkable year for the crypto industry, which has rebounded from the Sam Bankman-Fried trial and reached new heights. The success of these ETFs, which are notably more traditional and less speculative than typical crypto investments, underscores the sector’s maturation and increasing acceptance within mainstream finance.
Looking ahead, the approval of Ethereum ETFs signals a significant transformation for the crypto market. It paves the way for more traditional investors to participate in the sector, potentially leading to more stability and growth. This milestone also raises the possibility of future ETFs for other cryptocurrencies, such as Dogecoin, further integrating the crypto market with conventional financial systems.
In conclusion, while ETFs may generally be seen as mundane, their introduction into the crypto world has been revolutionary. The SEC’s approval of Ethereum ETFs not only marks a significant victory for the crypto industry but also represents a broader acceptance of digital assets in traditional finance. As the market evolves, it will be fascinating to see how this newfound legitimacy impacts the future of cryptocurrencies.
