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.
Note:
The
views
expressed
in
this
column
are
those
of
the
author
and
do
not
necessarily
reflect
those
of
CoinDesk,
Inc.
or
its
owners
and
affiliates.
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.”
So
why
now?
What
does
it
mean
for
Ethereum
going
forward?
And
does
this
bode
well
for
other
cryptos?
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.
It’s
possible
that
all
these
events
on
the
Hill
acted
like
a
temperature
check,
and
helped
convince
Gensler
that
his
approach
to
crypto
was
becoming
a
political
hazard.
Afterall,
former
President
Donald
Trump
did
just
announce
his
support
for
crypto
in
a
big
way
–
and
denying
ETH
ETFs
on
the
basis,
purportedly,
that
the
SEC
wasn’t
having
“productive”
meetings
with
applicants
would
be
great
ammunition.
To
be
sure,
the
SEC
didn’t
approve
ETH
ETFs
to
actually
list
anytime
soon
–
just
the
Cboe,
NYSE
Arca
and
Nasdaq’s
19b-4
proposals,
which
would
allow
them
to
list
the
funds
once
firms
like
Ark
Invest,
Bitwise,
BlackRock,
Fidelity
and
Grayscale,
among
others,
get
their
S-1
filings
approved.
That
could
take
months.
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.
“A
lot
of
people
have
been
caught
offside
by
the
Ethereum
ETF
announcement.
Even
though
the
Bitcoin
ETF
created
a
crypto
ETF
roadmap
for
wirehouses
and
large
registered
investment
advisors,
I
still
expect
that
many
institutional
stakeholders
are
now
scrambling
to
prime
their
sales
teams
on
the
state
of
Ethereum
and
put
together
the
proper
infrastructure,”
Framework
Ventures
co-founder
Michael
Anderson
said
in
an
emailed
statement.
And
while
ETFs
are
really
just
a
vehicle
for
gaining
exposure
to
an
underlying
asset,
it
is
also
possible
that
these
funds
will
actually
drive
more
users
onto
Ethereum
itself.
One
scenario:
because
the
SEC
likely
won’t
allow
fund
managers
to
stake
the
underlying
ETH,
it’s
possible
new
ether
investors
determine
that
they
want
to
do
it
themselves
to
earn
that
extra
~3.5%
yield.
Relatedly,
as
Variant
Chief
Legal
Officer
Jake
Chervinsky
noted
on
X,
the
approval
likely
answers
one
lingering
question:
whether
or
not
ETH
is
a
security.
Chervinsky
said,
if
these
funds
are
allowed
to
trade,
it
would
likely
mean
that
unstaked
ETH,
in
particular,
isn’t
viewed
as
a
security
at
the
agency.
That
in
itself
may
spur
more
institutions
into
the
market,
considering
that
many
are
currently
holding
off
simply
due
to
regulatory
uncertainty.
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.
Ethereum
instituted
a
burn
mechanism
that
destroys
tokens
with
every
transaction,
which
for
a
long
time
made
the
asset
class
deflationary.
But,
with
the
growing
popularity
of
L2s
and
alternative
chains
like
Solana,
Ethereum
transaction
volumes
have
dropped
to
such
a
degree
that
the
supply
of
ETH
is
growing
again,
which
raises
long
term
implications
for
the
asset’s
price
and
demand.
The
ETFs
could
help
support
the
economics
of
ETH.
Finally,
it
will
be
interesting
to
see
how
the
funds
affect
the
staking
economy.
Some
people
have
been
ringing
alarm
bells
about
the
amount
of
staked
ETH,
now
that
applications
like
Lido
make
it
very
easy
for
people
to
lock
up
even
tiny
quantities
of
the
crypto.
With
the
possibility
ETFs
pull
even
more
ETH
out
of
circulation,
these
concerns
may
be
compounded.
What
does
this
mean
for
chains
like
Solana?
As
mentioned,
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.
“Assuming
the
Ethereum
ETF
sees
even
a
fraction
of
the
institutional
flows
that
the
Bitcoin
ETF
saw,
I
think
it’s
entirely
possible
that
Ethereum
will
be
solidified
as
the
uncontested
leader
in
decentralized
app
platforms
for
the
next
several
years,
at
least
in
terms
of
market
share
and
valuation,”
Anderson
said.
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.
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.
