Ethereum, the nerdy cryptocurrency that was lately overshadowed by Bitcoin, is in the news again, and the price is pumping. What gives?
Well, only one of the most important developments in Ethereum's history, anon. An Ethereum spot ETF (Exchange Traded-Fund) might get approved in the U.S. today — that's Thursday, May 23.
UPDATE: May. 24, 2024, 11:51 a.m. CEST The first Ethereum ETFs indeed got the nod from regulators on Thursday, though there's more steps and hoops to jump through (see part on the S-1 form below) before they can actually start trading.
Before we get into all that, here's a very short primer on Ethereum or ETH. Launched in 2015 by programmer Vitalik Buterin and others, Ethereum is the second largest cryptocurrency by market cap, behind Bitcoin, and it has been so for the better part of the past five years or so.
What is this Ethereum thing you speak of?
Ethereum is a very different beast from Bitcoin. The latter is a digital currency and a public ledger of transactions that uses a network of computers (miners) to securely verify every transaction in the system, as well as create new coins through a computing-intensive process called proof-of-work.
Ethereum is a blockchain platform for decentralized apps. Unlike Bitcoin, it uses proof-of-stake to power and secure the network, meaning there is no environmentally unfriendly mining, with validators using a stake of their ether or ETH (the underlying currency of the platform) to validate transactions. Also, unlike Bitcoin, which is all about the secure sending and receiving of bitcoins and fairly little else, Ethereum is a platform for other decentralized apps (also called smart contracts) to run on.
As you can imagine, this makes Ethereum more powerful than Bitcoin in a sense, but it also makes it more complicated, both in terms of usage and implications. These days, basically everyone — the likes of large banks and pensions funds included — understands Bitcoin to be a largely decentralized digital asset, which can be bought, securely stored and sold, akin to a digital version of gold. Ethereum is a lot more complicated, with the U.S. SEC (Securities and Exchange Commission) not being entirely clear on whether ETH is a security or not.
An ETH ETF is now a very real possibility
This leads us to the part about ETFs. In January 2024, after receiving the SEC's blessing, Bitcoin spot ETF funds started trading in the United States. This had immense implications as to who can buy Bitcoin; suddenly, a U.S. state pension fund or an investment fund was able to easily get exposure to Bitcoin without worrying about breaking some rule. And the "spot" part, in contrast to a futures ETF, means that the Bitcoin spot ETFs must buy actual Bitcoins when someone buys their product.
The interest was record-breaking, with more than $13 billion flowing into BTC via spot ETFs since their inception. And unsurprisingly, the price of Bitcoin soared from around $42,000 in early January to roughly $69,500 at writing time.
Many of the same entities — large investment companies such as BlackRock, VanEck, and Ark — also filed for a spot Ethereum ETF, with deadlines for SEC's approval or denial starting on May 23. And up until a few days ago, analysts largely believed that the ETFs would be denied, given SEC's previous reluctance to provide clear guidance over whether ETH is a security or not.
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This has changed. According to Bloomberg senior analyst Eric Balchunas, there was "chatter" that the SEC has completely reversed its stance on Ethereum, followed by a slew of potential ETF issuers submitting amended 19b-4 forms to the SEC, signaling that there's a very good chance that the ETFs are on their way for approval.
We know, the sheer mention of something like a 19b-4 form made you fall asleep instantly. But we mention it because there's another set of forms that need to be approved, the S-1 forms, and those are key for actual ETF approval.
In practice, this means we could get a very good indication that one or more (probably more) Ethereum ETFs are coming, but it might take weeks or months before they actually start trading.
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As a result of these filings, the price of Ethereum rose from around $3,100 to $3,800, where it's trading at writing time.
Of course, nothing is official or set in stone. The Ethereum ETF applications could still get denied, though the consensus among experts is that it's now a question of when, not if, it will happen. A denial would surely be a cold shower for Ethereum's price, at least in the short term.
This is one of the most important developments for crypto, period
This is not just about Ethereum's price. This sudden change of sentiment by the SEC could mean that the U.S. government is suddenly far more open to everything crypto related. Indeed, an important crypto bill was just passed by the U.S. House of Representatives, despite the SEC head Gary Gensler having some very stern words about it.
Perhaps the simplest of implications of this approval is other crypto spot ETFs getting the nod in the future. But with BlackRock launching a tokenized version of its money-market fund on Ethereum, it's getting easy to envision a future in which a big chunk of global finance exists on the blockchain. In other words, your nerdy, crypto-mining neighbor who told you that one day all of finance will roll into crypto, may have actually been right.
What now?
Well, unless you're a trader looking to capitalize on price moves, you don't really have to do anything. Regardless of whether the Ethereum spot ETF is denied, approved, or delayed today, Ethereum and its ecosystem of apps will keep trudging along.
But it is important to consider that a potential approval fully legitimizes an entire new class of crypto assets. Institutions, funds, banks, perhaps even pension funds, will be looking to get in on the action, and it could spark a thriving period for Ethereum, as well as the apps and assets that reside on it. After a bit of a lull in the past couple of years, the crypto space could once again become very exciting over the next couple of years.
Topics Cryptocurrency
