We’ve reached a significant milestone in the world of cryptocurrency with the approval of a Bitcoin spot ETF. This was an event that many of us never thought we would witness in our careers. Now, the industry’s attention has turned to the approval of an Ether (ETH) spot ETF as the next target. However, those hoping for another decade of exciting headlines will be disappointed.
The approval of an ETH spot ETF is not only certain now but imminent. The United States Securities and Exchange Commission (SEC) can no longer hide behind vague objections to the clear commodity ETP filing, as it did with Bitcoin. Commissioner Hester Peirce has criticized the SEC’s conduct and the denials of these applications, stating that they never made sense.
The SEC’s prejudice against Bitcoin was finally ended by Greyscale’s lawsuit. As a result, the SEC’s credibility has been eroded, and it has created a circus-like atmosphere around crypto products that would not have been witnessed otherwise. The $1 billion of assets now held in BlackRock’s BTC spot ETF is evidence of this.
However, we will not see such a circus around an Ether ETF. Currently, there are seven ETH spot ETF applications awaiting approval from the SEC. VanEck is the first in line with a deadline of May 23, 2024. Although BlackRock’s application deadline is in August, the SEC has already initiated proceedings on VanEck’s applications, indicating that it would need a good reason for denial.
This has led the market to believe that an approval is coming in May. And this approval will not only apply to an ETH product but also pave the way for other crypto-backed or linked ETPs, from spot products to more complex instruments.
The only potential obstacle to a spot ETH approval is liquidity. Ethereum’s move to proof-of-stake has limited the supply of ETH, making the size and scale of the market a concern. Additionally, while Bitcoin is primarily used as a store of value, ETH is a working currency used for transactions on the Ethereum network.
However, this liquidity issue is a long shot, and it could also be applied to equities but never is. Solutions will continue to be found as mega ETP funds attract assets from the pensions savings of an aging global population.
The question of whether ETH is a security becomes irrelevant when it becomes an ETF. We already have commodity ETFs, so the debate is moot.
The reason it took so long for a Bitcoin ETF to be approved was simply politics. The SEC was hesitant and unsure until asset managers were ready to accept this new asset class. Now that we have clarity with the approval of the BTC spot ETF, cryptocurrency has not only entered the traditional financial world but has taken a seat at the table. We can now expect the institutionalization of the cryptocurrency industry on a large scale.
Lucas Kiely is the chief investment officer for Yield App, overseeing investment portfolio allocations and leading the expansion of a diversified investment product range. He has a background in investment management and trading at firms like Credit Suisse and UBS. This article represents his personal views and should not be taken as legal or investment advice.