Ethereum’s recent price surge has caught many off guard, following the unexpected news that the application process for spot Ether exchange-traded funds (ETFs) was moving forward. Most investors had already accepted that the Securities and Exchange Commission (SEC) would likely reject the applications. However, Bloomberg’s respected ETF analysts suddenly increased the odds of approval from 25% to 75%, resulting in a significant price increase for ETH. The rally signifies the importance of spot ETH ETF approval, particularly for decentralized finance (DeFi). Unlike the approval of spot Bitcoin ETFs that solidified Bitcoin as an institutional asset, an ETH ETF would legitimize altcoins and drive them further in the current bull market rally. Here’s what I anticipate will happen now that the SEC has given the green light to the ETH ETF applications.
Ethereum layer-2 solutions such as Optimism and Arbitrum are expected to benefit alongside Ethereum. These tokens experienced similar price movements to ETH during the recent market bounce, recording significant percentage increases. Rollups are now integral to the Ethereum ecosystem and are closely connected to its success.
DeFi projects like Uniswap and Aave, which have direct ties to EVM technology, will also thrive due to their association with Ethereum. These projects performed well during the recent market surge, and their success is likely to continue with the legitimacy offered by an ETF approval.
Projects and blockchains that are EVM-compatible will outperform closed ecosystems. This places platforms like Avalanche and Polygon in a better position than Algorand, which is not yet EVM-compatible.
The approval of a spot ETH ETF will make investing in DeFi simpler and more secure, potentially attracting everyday users seeking higher returns. Decentralized exchanges like SushiSwap and Balancer, as well as borrowing/lending protocols like Aave and Compound, are likely to benefit the most from this trend.
Competitors to Ethereum, including Solana, may struggle to outperform in a post-ETH ETF environment. While these platforms may still reach all-time highs, Ethereum’s ETF approval solidifies its position as the leading blockchain in DeFi, leaving behind any previously considered “Ethereum killers.”
Technological developments on Ethereum, such as zero-knowledge proofs that power Ethereum L2s, and real-world asset (RWA) tokenization experiments, will gain further traction following the ETF approval. More projects are expected to build on Ethereum, and some may transition from L1s to Ethereum rollups for better development opportunities.
However, with increased development and new token launches, the DeFi space may also see a rise in fraud, rug pulls, and potential losses. Investors must prioritize their security and conduct thorough research before investing in any project. It is essential to avoid making impulsive trading decisions based on FOMO (fear of missing out) and wait for market pullbacks before making informed moves.
In conclusion, the approval of a spot ETH ETF is a significant development for Ethereum and the broader DeFi ecosystem. It opens new opportunities for growth and legitimizes altcoins, but investors must remain cautious and informed to navigate the evolving market landscape successfully.