The approval of the Ethereum spot ETF marks the legalization and acceptance of cryptocurrencies in mainstream finance, and XRP and SOL may become the next approved cryptocurrencies, driving widespread adoption in the industry.
Author: Slobodzeanb
Translation: Plain Blockchain
The spot Bitcoin ETF has been around for quite some time, accumulating a large amount of Bitcoin and showing unexpected trading volume. As of July 2024, the spot Bitcoin ETF in the United States holds $50 billion worth of BTC, with an average daily trading volume of $100 million.
Naturally, asset management companies like BlackRock and Fidelity have earned hundreds of millions of dollars in fees from these ETFs, and they want to earn even more. That's why in May 2024, we witnessed a truly legendary event - the government approved a series of spot Ethereum ETFs!
In this article, we will look at how the approval of these financial instruments will impact the crypto market, especially Ethereum.
1. The U.S. Securities and Exchange Commission (SEC) approves the listing of spot Ethereum ETFs
On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of spot Ethereum ETFs on multiple securities trading platforms. Prior to this, the U.S. had only approved trading of Ethereum futures ETFs.
Before we continue the discussion, let's take a look at what ETFs actually are.
ETF, or exchange-traded fund, is an investment product traded on securities trading platforms, similar to individual stocks. It holds assets and typically operates an arbitrage mechanism to keep its trading price close to its net asset value.
In simple terms, an ETF is an investment fund that purchases assets (such as gold, Bitcoin, Ethereum) and issues shares based on their total valuation.
Investors who cannot hold the underlying assets only need to purchase shares of the ETF, which typically reflects the market performance of the underlying assets.
Ethereum ETFs will trade on the three major U.S. securities trading platforms:
New York Stock Exchange Arca: Grayscale Ethereum Trust and Bitwise Ethereum ETF
NASDAQ: BlackRock iShares Ethereum Trust
Chicago Options Exchange BZX: VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund, and Franklin Ethereum ETF
The ETF listed on CBOE will go live on July 23, while the rest of the ETFs have not announced their launch dates yet. Meanwhile, asset management companies are deciding on fees and seed investments.
Currently, the "fee war" is ongoing, with Franklin Templeton disclosing a fee of 0.19% and VanEck disclosing a sponsorship fee of 0.2%. As the biggest player in the field, BlackRock is expected to announce a sponsorship fee below 30 basis points.
In terms of seed investments, both Grayscale and Invesco Galaxy disclosed $100,000 in seed share purchases, while Fidelity invested $4.7 million. BlackRock reported a seed funding of $10 million for its ETF.
2. Approval of Ethereum ETF: A Game Changer for the Industry?
The approval of Ethereum ETFs has many benefits for the industry, but perhaps the biggest one is the implication that ETH is a commodity rather than a security.
The SEC has been inconsistent on the identity of certain cryptocurrencies (such as ETH, BNB, XRP, SOL), trying to determine whether they are securities or commodities.
In recent years, one of the major opponents of cryptocurrencies, Gary Gensler, has been avoiding the question of whether ETH is a security, but it is clear that the SEC has attempted to classify Proof of Stake tokens as securities based on the Howey test.
Now, with the approval of these Ethereum ETFs, the SEC has not explicitly stated that Ethereum is a commodity. However, it has defined these ETF products as "commodity-based trust shares." This wording largely settles the debate on how to classify unstaked Ethereum.
Based on this classification, Coinbase (and potentially other companies in the future) has filed an appeal in its case against the SEC.
Essentially, this cryptocurrency exchange platform points out the disagreement between legislators and the SEC on how they view their jurisdiction over cryptocurrencies. The SEC sued Coinbase last year, accusing it of operating as an unregistered securities exchange, broker, and clearing agency.
3. Benefits of Ethereum ETF
In addition to the political and legal benefits of Ethereum spot ETFs, ordinary investors can also enjoy the following three advantages:
Accessibility: Traditional investors may not want to deal with the complexity of cryptocurrency trading platforms and can now buy and sell Ethereum ETFs through their existing brokerage accounts. This eliminates the need for cryptocurrency wallets and lowers the barrier to entry for technology.
Legitimacy: The listing of Ethereum ETFs on major securities trading platforms adds credibility and recognition to the entire cryptocurrency market. This recognition from traditional financial institutions helps bridge the gap between traditional finance and the emerging digital asset world.
Liquidity: Through ETFs, institutional and retail investors' participation increases, which could significantly boost Ethereum's liquidity. This means smoother trading and less volatility, benefiting everyone from individual traders to large funds.
4. Impact of Ethereum ETF on Prices
The launch of Ethereum spot ETFs in the United States will undoubtedly have a significant impact on the price of cryptocurrencies in the short and long term. But how significant will this impact be, and what level of volatility should we expect?
Bitwise points out that while initial price fluctuations may be significant due to funds transferring from Grayscale Ethereum Trust to ETFs, Ethereum's price may break through the $5,000 resistance level by the end of the year. This optimism is based on the expectation of a large influx of funds into the new Ethereum spot ETF.
These assumptions are based on historical data from the launch of the Bitcoin spot ETF in the United States. The launch of the Bitcoin spot ETF had a positive impact on the price of Bitcoin, rising by 25% since January and over 110% since the market began anticipating its launch in October last year.
For several reasons, the impact on ETH may be even more significant. Currently, Ethereum's short-term inflation rate is 0%, compared to Bitcoin's inflation rate of 1.7% at the time of the ETF launch. Limited supply and significantly increased demand mean that prices are likely to rise in almost all scenarios.
Additionally, unlike Bitcoin miners, Ethereum stakers do not need to sell their holdings, with 28% of ETH already staked and effectively out of circulation in the market.
Other cryptocurrency analysis firms, including Steno Research and K33 Research, also provide optimistic forecasts for Ethereum. Steno Research predicts that Ethereum could reach $6,500 later this year, driven by ETF fund inflows and other favorable market conditions.
K33 Research predicts that $4 billion will flow into Ethereum within the first five months of trading, potentially leading to an accumulation of 800,000 to 1.26 million ETH, resulting in supply shortages and price increases.
5. XRP and SOL: Who's Next?
The approval of Ethereum and Bitcoin spot ETFs clearly indicates that financial regulatory agencies are beginning to recognize the legitimacy of cryptocurrencies.
With the support of major asset management companies such as BlackRock and Fidelity, the next cryptocurrencies likely to receive ETF approval are XRP and SOL.
Solana is a competitor to Ethereum and is the fifth largest cryptocurrency by market capitalization. Given its similarity in underlying technology to Ethereum, many believe that since Ethereum has been approved, it will be difficult for the SEC to reject a spot ETF for Solana.
As of July 9, VanEck and 21Shares have already applied for a Solana futures ETF, and Bloomberg analysts predict that applications for a Solana spot ETF will begin by mid-March 2025.
Ripple's XRP is another strong candidate for a spot ETF. XRP is still a top 20 cryptocurrency by market capitalization and has powerful underlying technology used by many major banks, such as Santander and JPMorgan.
The legal dispute between Ripple and the SEC over whether XRP is a security or a commodity will play a crucial role in determining its ETF eligibility.
Standard Chartered Bank believes that Solana or Ripple will receive a spot ETF in 2025:
"For other cryptocurrencies like SOL, XRP, the market will also expect their eventual ETF status, although this may be a 2025 story rather than a 2024 one." - Geoffrey Kendric
6. Cryptocurrencies Driving Mass Adoption
After years of legal challenges and resistance from the SEC, the cryptocurrency industry seems to be receiving more favorable responses from regulatory agencies.
The SEC's stance is becoming more relaxed, coupled with shifts in attitudes from various politicians and political parties, indicating that cryptocurrencies may be entering a new era of acceptance in mainstream finance.
Former President Donald Trump recently changed his stance on cryptocurrencies, expressing support on social media and even accepting cryptocurrency donations for his 2024 presidential campaign.
There is speculation that the recent decision by the SEC to push for the approval of Ethereum spot ETFs was influenced by political pressure from the Biden administration.
Regardless of the reasons, it is clear that no one wants to be left behind in the cryptocurrency wave, which is a good sign for the future of the industry.
Original article link: https://www.hellobtc.com/kp/du/07/5313.html
Source: https://medium.com/realsatoshiclub/ethereum-etfs-a-huge-step-towards-crypto-adoption-1d9e3bc37788
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