The currency circle ushered in a critical moment! Will the spot Ethereum ETF be approved tonight?

Golden Ten New Media

2024-05-23 17:27Published in Guangdong

The currency circle may be "jumping up and down" again tonight, do we need to be vigilant again against the "buy news and sell facts" market?

The cryptocurrency market is increasingly optimistic that U.S. securities regulators may approve spot ETFs that invest directly in Ethereum, the second-largest coin after Bitcoin. Foreign media analysts expect that the U.S. Securities and Exchange Commission will announce the news about the spot Ethereum ETF in the early hours of Friday.

SEC officials on Monday unexpectedly asked the Nasdaq and the Chicago Board Options Exchange (CBOE) to quickly update and revise their spot Ethereum ETF listing application documents, which is usually a pre-approval request, suggesting that the agency may be prepared to approve the two companies' applications, according to a May 21 report.

At present, publishers such as VanEck have updated the 19b-4 document, and most publishers have removed the relevant staking clauses. Staking has always been a sensitive issue for Ethereum because it enables holders to earn yields, which raises questions about whether the token should be considered a security regulated by the SEC.

The SEC is about to make a blockbuster decision!

The SEC must decide by this week whether to approve CBOE's listing applications for VanEck and ARK Investments and 21Shares' spot Ethereum ETFs, which require SEC approval of its revised rules before listings, while issuers still need SEC approval of ETF registration statements before they can start trading.

Unlike the exchange's filings, the SEC does not have a definite timeframe for decision, which means that it may be a few months before spot Ethereum ETFs begin trading. There is also speculation that the SEC has issued a document update request to all issuers at the same time, which may mean that several spot Ethereum ETFs are expected to be approved at the same time.

But the approval of these applications does not automatically open the door to new spot funds. This in no way guarantees a green light, people familiar with the matter said.

After delaying decisions on these fund applications in the past few months, the SEC will meet the May 23 deadline to approve or reject VanEck's application. VanEck is one of the issuers that filed an application with the SEC.

There is news that there was a conversation between SEC staff and spot Ethereum ETF issuers regarding the S-1 filing. They have now concluded that there is "some work to be done" on these issues.

There is a key question

The advent of spot bitcoin ETFs in January of this year was considered a breakthrough because they actually held bitcoin and were widely welcomed by investors. Previously, investors could only invest in Bitcoin futures, a derivative contract to buy or sell an asset at a specific price at a later date.

Based on key trading metrics such as traffic and trading volume, the launch of the spot Bitcoin ETF is considered a great success. The price of Bitcoin has soared to its highest point in more than two years. At the top of the list are BlackRock's iShares Bitcoin Trust (IBIT) and Fidelity Wisdom Origins Bitcoin Fund (FBTC), both of which crossed the $1 billion threshold in less than five days and are the only two funds in the ETF space to attract more than $3 billion in the first 20 days of trading.

For spot Ethereum ETFs, there is good reason to believe they will be popular with retail investors, with the nearly 12 spot Bitcoin ETFs launched by companies such as Fidelity Investments and BlackRock have attracted nearly $13 billion in net inflows since their launch.

While retail investors are the main buyers of Bitcoin, the latest 13F report shows that hedge funds, pension funds, and banks are also investing in spot Bitcoin ETFs. The most well-known buyers are hedge funds such as Millennium Management, as well as Steven Cohen's Point72 Asset Management and Elliott Investment Management. Millennium Management even owns at least four spot Bitcoin ETFs with a total value of about $2 billion.

Ethereum prices have risen by about 20% over the past three days amid growing optimism that the SEC will approve at least one spot Ethereum ETFTF before the deadline.

However, staking has been a hot issue for Ethereum, as it allows holders to earn on an ongoing basis, raising questions about whether the token should be considered a security that falls within the purview of the SEC. Some market participants believe that if ETFs do not stake their Ethereum holdings, then these funds will be less attractive to investors than buying Ethereum directly in the cryptocurrency market.

Brian Rudick, senior strategist at digital asset firm GSR, said, "Holding Ethereum through ETFs incurs an immediate opportunity cost due to giving up staking rewards. ”

At the same time, though, many industry advocates argue that the removal of staking schemes for ETF issuers is actually a good thing for the industry, as the industry's goal is to build a decentralized financial system rather than relying on a handful of intermediaries.

Leo Mizuhara, founder of Hashnote, an asset management firm for decentralized financial institutions, said, "Staked Ethereum as part of an ETF could become a huge centralized force. For example, Coinbase currently has a very large amount of bitcoin in custody due to the spot bitcoin ETF, and something similar could happen with Ethereum staking. ”

However, some expect ETF issuers to eventually get regulatory clarity to stake Ethereum. Ryan Watkins, co-founder of Syncracy Capital, said:

"I don't think this is going to last forever, and as regulation becomes clearer in the coming years, these ETFs will eventually feature staking because the incentives are just so tempting."

Be wary of buying news and selling facts? Citi: Don't panic!

As the SEC is about to make a final decision on the spot Ethereum ETF application, the most important thing for investors to understand is whether Ethereum will replicate the Bitcoin market when the spot Bitcoin ETF was approved. Bitcoin fell 17% after the spot ETF was approved due to speculation and leveraged betting.

According to a recent report by Citi, the bank believes that Ethereum appears to be less likely to have a "buy news sell fact" than Bitcoin. Because in contrast, spot Ethereum ETFs are less likely to be approved, resulting in a less extreme market positioning.

Citigroup's data shows that Ethereum's open interest and funding rates have decreased compared to previous months. However, open interest has started to rise, indicating that the market is increasingly expecting the ETF to be approved.

In addition, Citi's historical data shows that net inflows into spot Bitcoin ETFs have had a significant impact on crypto returns. For example, as of May 20, spot bitcoin ETFs had net inflows totaling $12.9 billion, meaning that every $1 billion in inflows drove bitcoin up by about 6%. Assuming that Ethereum has a similar pattern, it is estimated that the inflow could be between $3.8 billion and $4.5 billion, which could drive the price of Ethereum by 23-28%.

However, there are several factors that may affect these estimates, including the different market demand for Ethereum and Bitcoin, the rotation of existing ETF holders from Bitcoin to Ethereum, the outflow of existing funds after the trust is converted into an ETF, and more.

Citi analysts said that in the long run, Bitcoin and Ethereum, driven by macroeconomic factors, are expected to remain highly correlated. While on-chain activity and potential use cases differ, such as Bitcoin's role as "digital gold" and Ethereum's smart contract capabilities, sentiment and further use case development remain critical for both cryptocurrencies. Citi concluded:

"We expect major tokens to remain highly correlated and continue to be driven by macro forces over the long term."

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