The SEC’s ETH ETF Approval: 3 Questions Explored
Crypto News- The U.S. Securities and Exchange Commission (SEC) confirmed yesterday it has approved critical rule changes to allow for exchange-traded funds holding Ethereum’s native token, ETH. A lot of people were caught off guard, considering that just last week nearly everyone – from Bloomberg analysts to prediction markets – thought it was a lost cause.
Background on SEC’s Decision
It never really made sense to me why SEC Chairman Gary Gensler would hold out on approving these spot ETH products, considering how the agency was embarrassed during its proactive fight over listing bitcoin ETFs.
Recall that a three-person panel of judges in an appeals court called the SEC’s reasoning for denying (and denying and denying) spot bitcoin funds “arbitrary and capricious,” as it had already approved bitcoin futures products that did substantially the same thing. The same situation has been true for ETH as well, and it’s likely that some firm would have been happy to litigate the matter in the same way Digital Currency Group went to bat for bitcoin ETFs.
This time around, the SEC’s decision seems just as arbitrary, just in the opposite direction. In an interview with CoinDesk’s Jesse Hamilton hours before the approval became public, Gensler said he’d follow “how the courts interpret the law” and that the “DC Circuit took a different view, and we took that into consideration and pivoted.”
Political Motivation Behind the Decision?
Was the decision politically motivated? As many have already noted, it appears there has been a seachange regarding crypto’s regulatory situation. On Thursday, the House took a historic vote to approve the most substantive piece of crypto-specific legislation to date. This came on the heels of both the upper and lower houses of Congress voting to repeal a controversial SEC crypto custody accounting rule.
With significant participation from Democrats in both bills, it appears that the U.S. government’s long war on crypto is nearing an end. Notably, President Biden announced that he wouldn’t veto the crypto market structure bill, FIT21, which the White House officially opposes – a pretty major concession.
Implications for Ethereum and the Crypto Market
What does it mean for Ethereum? Well first off, the launch of spot ETH funds means that there may soon be a lot more institutional interest in the second largest cryptocurrency. Not only did the move act as a sort of stamp of approval, it will also create a familiar on-ramp for buying the asset for anyone from mom and pop investors looking to diversify their 401(k)s to hedge funds, much in the same way ETFs did for bitcoin.
Technical and Economic Ramifications
On a more technical level, there are many open questions about what it would mean for Ethereum in a world where these funds buy up vast quantities of ETH (assuming they’re as popular) as the bitcoin ETFs. To some degree, the buying pressure would be great for the network and surrounding layer 2s.
Impact on Other Chains
What does this mean for chains like Solana? The approval of ETH ETFs is something of an endorsement for Ethereum, and likely an opportunity for the chain to lock in its already dominant brand position.
But the move may also open the door for alternative chains like Cardano, Solana, and Ripple to also enter further into the world of high finance. Of course, bitcoin and ETH had an easier time (all in perspective) because financial incumbents like CME had already embraced them. Ether futures have been live on CME for three years already, while it’s not even clear whether other crypto assets are being considered.
Regulatory Implications
It’s also worth noting that, while the SEC has hinted it thinks ETH is a security, the agency has proactively come out and said that assets like SOL, ADA, and ALGO fit the definition outlined by the Howey Test used to determine whether something is an investment contract. This may be a speed-bump in the road towards a spot SOL ETF.
FAQs
What are the recent rule changes approved by the U.S. Securities and Exchange Commission (SEC)?
The SEC recently approved critical rule changes to allow for exchange-traded funds (ETFs) holding Ethereum’s native token, ETH. This decision marks a significant development in the regulatory landscape for cryptocurrencies.
Why was there surprise surrounding the SEC’s approval of Ethereum ETFs?
Many were caught off guard by the SEC’s decision, especially considering the skepticism just a week prior from analysts and prediction markets. The approval seemed unexpected given the SEC’s previous stance on similar products and the prolonged regulatory uncertainty surrounding cryptocurrencies.
Was the SEC’s decision politically motivated?
There’s speculation about potential political motivations behind the SEC’s decision. Recent legislative actions in Congress regarding cryptocurrency regulation, coupled with statements from prominent figures like former President Donald Trump expressing support for crypto, may have influenced the SEC’s stance.
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