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Ethereum took off yesterday up ~19% as market participants scrambled to weigh in on the increased possibility of imminent ETH ETF approvals. The SEC's request for exchanges to update their 19b-4 filings indicates potential progress towards approving spot Ether ETFs. However, even with updated filings, the SEC might still reject the S-1 registration statements, which could delay the approval and trading of the Ether ETFs. Polymarket prediction markets for the approval of an Ether ETF by May 31 has risen from 10 cents to 55 cents, indicating a 55% chance of approval. The tweet that really got things moving was from Eric Balchunas (Bloomberg ETF analyst) stating they are updating odds of approval from 25% > 75%.
Timeline & Process
The approval process involves two steps: 19b-4 Filings Exchanges like NASDAQ or NYSE submit these filings for rule changes to list new products. S-1 Registration Statements These detail how the fund will be managed and track the underlying asset's price. The SEC must approve both 19b-4 and S-1 filings for the ETFs to launch. While the SEC has been slow to engage, there are signs of a possible swift approval. It’s a similar situation to the Bitcoin ETF where if one gets approved they will all get approved and Blackrock’s iShares Ethereum Trust is likely to be the most popular. ImplicationsThe entire crypto market has been dragged up this year by money flowing into the Bitcoin ETF’s from institutional investors. I’ve written previously about why I don’t think there is as much demand for an Ethereum ETF as there is for Bitcoin currently. That being said we are going to see a rotation from traders which may have already played out somewhat in yesterdays move but could have more long-term effects. In past market cycles Bitcoin pumps, then Ethereum pumps, then Alts pump as attention moves up the risk curve. An Ethereum ETF would be great for Ethereum and ETH stakers but it also increases the possibility of an altseason where risk and reward are at their maximum and perhaps other digital asset ETF’s in the future. I can’t see BNB getting one any time soon, stablecoins don’t make sense but the next tokens on the market cap list are SOL, XRP and DOGE. They would never approve a DOGE ETF now or in the future, would they? XRP which currently trades at $0.54 probably looks favorite as long as they didn’t burn bridges in their legal battle. Something that requires further research and if anyone has any thoughts or insights into this I’d be grateful to hear about them. 3rd party assets on Ethereum such as DeFi governance tokens, NFT profile pics and pretty much everything else outside of memecoins have struggled relative to Bitcoin this year. Against the US dollar many haven’t reclaimed all time highs since 2021, which to note, neither has Ethereum which set an all time high in November 2021 at just under $5k. Before yesterday’s price move it was trading at $3k so there is some headroom for ETH and assets on Ethereum. Nothing is guaranteed and if the ETF’s do get rejected or delayed there’s significant downside risk and potential for a liquidation cascade type event. This could be a buying opportunity as James Seyffart from Bloomberg stated “If 19b-4s are approved, S-1 approval is a matter of when not if”
Another consideration is that Ethereum’s market cap is currently around 1/3rd the size of Bitcoin and it has a deflationary supply curve. Although there is likely to have less demand it could create a bigger impact for every dollar that flows into the ETF’s. Ethereum is building a world computer, at the moment it’s slow, expensive and the UX is awful but this will change over the next 10 years. I expect either Ethereum or another decentralized data and smart contract platform will one day be a viable alternative for mainstream developers to cloud computing services such as AWS and Google Cloud. Not many people understand that and at some point if the thesis plays out institutional investors will become very interested in this thing which is “more than just a cryptocurrency”.
Spectator sport on the ETH daily.
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