“Foresight News Creator Column” is a dialogue column launched by Foresight News, where we ask outstanding creators selected each month about current market hot topics and compile the results into articles to explore deeper thinking.
Authored by: Foresight News
Compiled by: Foresight News
On May 23, local time in the United States, the SEC approved the 19b-4 form of 8 Ethereum spot ETFs, marking another milestone event for the cryptocurrency industry this year following the approval of the Bitcoin spot ETF. The softening regulatory attitude is undoubtedly an important catalyst for this round of bull market, but the market’s response has been unexpected. Can this wave of good news allow Ethereum to take the lead and lead the bull market towards prosperity?
The theme of this issue of “Creator Column” is “Spot ETH ETF Approved, Can Ethereum Lead the Bull Market?” We have invited the creators who made it to the Foresight News May 2024 outstanding creators list, including LD Capital, Web3 Legal, Eureka Partners, Block Unicorn, inpower Wang Jun, Mankun Blockchain Legal Services, Little Pig Web3, Tom Analysis, and LFG Labs to join the discussion.
Around the topic of “ETH ETF,” we raised five questions: “Why did the US SEC suddenly change its attitude?” “Why is the market reaction to this positive news far less than that of the BTC ETF?” “What impact will the recent controversies of the Ethereum Foundation have?” “Which ecosystems will benefit from this?” and “Recent investment strategies.” Here are the answers we collected:
1. The spot ETH ETF was approved, why do you think the US SEC’s attitude suddenly changed? What impact does this have on the cryptocurrency industry from a regulatory perspective?
LD Capital: Regulators and politicians are unpredictable. From the perspective of ETH CME holdings, the significant increase in holdings from 22.59 thousand coins on May 20 to 31.9 thousand coins on June 6 occurred in a short time span, showing that institutions were not actively betting on ETH ETFs before, and there were not many long positions being placed early. Therefore, the sudden change by the SEC is influenced by political factors. Additionally, the passing of the FIT21 bill (mainly establishing a system to regulate the US cryptocurrency market, setting consumer protection measures, designating the Commodity Futures Trading Commission (CFTC) as the primary regulator of digital assets and the regulator of non-securities spot markets) by the House also shows a signal of relaxed cryptocurrency regulation during this period. Although this bill still needs to pass the Senate, presidential action, etc., and President Biden vetoed the SAB121 vote on June 3, so there is a significant possibility that the FIT21 bill will be overturned in the upcoming process. The political maneuvering before the election will continue to have a transformative impact on the future of the cryptocurrency market. However, from a regulatory perspective, the approval of the ETH ETF helps it overcome the bearish uncertainty of securities classification for many tokens that previously had vague security definitions.
Web3 Legal: The reason why the BTC ETF was approved at the beginning of the year was due to 1) the successful lawsuit by Grayscale, under pressure from the courts; 2) the non-security nature of BTC itself; 3) the regulation of BTC in futures markets; and 4) the push from traditional financial institutions like Blackrock. Applying the same logic to the ETH ETF, there is a possibility that ETH could be classified as a security. We have also seen the SEC investigating the Ethereum Foundation. Additionally, the SEC has issued various Wells Notices to Uniswap, Robinhood, and other platforms to exert regulatory pressure. The real change is due to shifts in US politics, including 1) the advancement of the US elections (with 15% of the US population holding cryptocurrencies), 2) Trump’s pro-crypto stance, and 3) support from traditional financial institutions. The approval of the ETH ETF will have a significant impact on the cryptocurrency market, marking mainstream acceptance of crypto assets (likely in investment and asset allocation), and leading to further exploration of blockchain transformation in traditional finance (such as Blackrock’s tokenized funds, DTCC exploring the possibility of tokenized securities settlement, and cross-border blockchain payment settlement adoption).
Eureka Partners: The recent quietness in the cryptocurrency market has shifted market users’ focus to the macro market. For ETH, its biggest controversy is whether it is classified as a commodity or a security, an ongoing debate between the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The day before the approval of the ETH ETF, the FIT21 bill was passed, classifying ETH as a commodity, making the approval of the ETH ETF very clear. From a regulatory perspective, the approval of the ETH ETF means that the US has reached a consensus on ETH, distinguishing non-staking ETH as a commodity and staking ETH as a security. This clarity will provide a clear direction for future US policies.
Block Unicorn: Firstly, this shift is the result of both the Democratic and Republican parties in the US agreeing that cryptocurrencies can benefit the US government and accelerating the SEC’s approval process. Secondly, both parties have used cryptocurrencies as donations for presidential elections, which is an important move in the history of cryptocurrencies. This will continue to attract more people to join this industry, indirectly impacting billions of people worldwide through presidential elections. If only 50 million new people join this industry, it will have a significant impact on the industry’s fluctuations.
Inpower Wang Jun: I believe the main reason is to attract crypto voters. Currently, most of the key people in the SEC are Democrats, but they have been adopting conservative strategies in crypto policies. It is said that there are 50 million voters in the US who are crypto users, and Trump is actively trying to attract this group of voters. In this context, the Democrats should also take proactive measures and not give up this part of the vote.
Mankun Blockchain Legal Services: If you can’t beat them, join them. According to statistics, there are over 50 million crypto asset users in the US, and the regulatory layer, including the SEC, should understand that this trend cannot be stopped. Instead of letting other governments benefit from this trend, the US should take the lead. From a regulatory perspective, this move whitewashes mainstream virtual currency projects and gives a wake-up call to other blockchain projects; projects can issue tokens, but compliance costs can be reduced.
Little Pig Web3: I believe the approval of the ETH ETF was only a matter of time. ETH has always been a representative of blockchain 2.0, with enough consensus in the crypto community. Regarding the sudden change in the US SEC’s attitude, I personally think it is due to political reasons (not explained in detail here) and the previous approval of the Bitcoin ETF. Approving the Bitcoin ETF definitely involved a detailed investigation of the entire cryptocurrency market. There is an old saying, “Consensus is value.” The consensus on BTC/ETH can be considered unshakable, and besides BTC/ETH/stablecoins, everything else is considered altcoins. ETH has been running for almost ten years without major issues and has incubated revolutionary products like DeFi, expanding the crypto market. Therefore, the sudden change in the SEC’s attitude may be an acknowledgment of ETH’s position in the crypto market. From a regulatory perspective, this is definitely a positive development for the cryptocurrency industry, as it signals mainstream market acceptance. We can also see that Hong Kong is easing regulations and was the first to launch an ETH ETF. However, currently, only BTC/ETH are benefiting from this, and some say this is an ETF bull run that does not have a significant impact on altcoins. But I believe that other cryptocurrencies will also benefit in the future; it just needs some time for mainstream market acceptance.
Tom Analysis: The Ethereum spot ETF in Hong Kong was listed in April, and the rapid approval of the US Ethereum ETF 19b-4 document likely had top-level support, showing the global competition for cryptocurrency ecosystems and user sentiment. Especially with the intensification of the US presidential election, the Republican party has always been more crypto-friendly, with Trump openly accepting crypto donations. The young demographic of cryptocurrency supporters is also a crucial voting bloc that the Democratic party needs to attract. From this perspective, the sudden change in the US SEC’s attitude can be understood. Looking at it from a broader and long-term perspective, the US financial regulatory system has a strong global reference, and Hong Kong, as a testing ground for China, can influence the financial landscape in Chinese communities. The rapid approval of the Ethereum ETF in the US is a significant step towards further legitimizing cryptocurrencies in the global financial system, continuing to drive crypto assets into mainstream investor portfolios, which is a long-term positive development.
LFG Labs: An election year is definitely a key factor. For the US, the group of people who directly or indirectly hold cryptocurrencies is a force that cannot be ignored, especially when poll data is tight. The “key few” are very desirable, as seen from the passing of the FIT21 bill at this time. The loosening at the executive, legislative, and regulatory levels has led to a shift in regulatory focus. Regardless of the actual outcome, this is a turning point for crypto assets to further enter mainstream visibility and gain a legal and compliant framework.
2. Why is the market’s reaction to the ETH ETF positive news far less than the previous BTC ETF? Do you think the main theme of this bull market will return to Ethereum?
LD Capital: Traditional institutions have higher familiarity and acceptance of BTC, and surveys show that the net inflow of funds after the formal approval of the ETH ETF may be less than 20%-30% of BTC. ETH is expected to become the main theme in the middle to later stages of the bull market, but in the short term, BTC remains very strong. This can also be seen from the term structure in the options market and the forward exchange rate of ETH/BTC, which still indicates a stronger bullish sentiment for BTC over longer periods (towards the end of the year).
Web3 Legal: The asset properties of BTC and ETH fundamentally differ, with traditional capital able to accept BTC as a store of value tool but not necessarily accepting ETH for this purpose. Considering the relative market sizes of ETH and BTC and the differences in institutional demand for these assets, the flow of funds may be disappointing. For example, the popularity of the US ETH futures ETF in October 2023 may have been overestimated.The asset management scale of the Hong Kong spot BTC ETF is about 239 million USD, while the asset management scale of the ETH ETF is 41 million USD, with a ratio of about 6:1. The ratio of the Canadian spot ETF is similar, with the asset management scale of BTC and ETH being 2.7 billion Canadian dollars and 450 million Canadian dollars respectively.
Eureka Partners: The main reason lies in social consensus. The purpose of ETF is to allow more users from traditional industries to buy and sell BTC like stocks. For traditional industry users, the social consensus of BTC will be much stronger than that of ETH, as everyone’s market awareness of Crypto cannot avoid BTC.
We at Eureka Partners believe that the bull market is actually a logic of the main uptrend, where the market narrative will show a cyclical change. Ethereum, as an ecosystem market that still has great potential, is bound to erupt with a series of good projects and voices.
Block unicorn: Firstly, after the Bitcoin ETF was listed, there was no doubt that the Ethereum ETF would be listed. People in the industry had already bought Ethereum during the Bitcoin listing period, but this stockpile of funds did not drive up the price of Ethereum. The news of the accelerated approval of the Ethereum ETF attracted unexpected new funds from the industry, causing a surge in the price of Ethereum.
Secondly, recently, or most recently, because Ethereum did not rise to their satisfaction, a sense of disgust began to emerge. I think this sentiment is mostly from retail investors, as large investors definitely have enough patience to wait for Ethereum. Currently, our industry’s financial infrastructure is almost completely dominated by Ethereum, and the logic of the world’s operation is that all economic activities in all industries are almost inseparable from banks. Ethereum has the most advanced financial infrastructure and innovation in the entire industry. When ETH rises, it can benefit the entire industry, as the volume determines that Ethereum has such strong energy to drive the market.
Tom Analysis: The market has had a relatively small reaction to the Ethereum ETF for a few main reasons: 1) After the approval of the Bitcoin ETF, the market already implied expectations for the approval of the Ethereum ETF. The price of Ethereum started rising from around $1600 in October 2023 to about $2400 in early January 2024, accompanied by Bitcoin breaking through $4000. Expectations for the Ethereum ETF were a significant driving force. 2) Currently, only the Hong Kong Ethereum ETF has officially started trading, but mainland users cannot purchase it, leading to a lack of incremental buying. The trading volume and market cap of the Hong Kong Ethereum ETF are relatively small. 3) Additionally, neither the Hong Kong Ethereum ETF nor the expected US Ethereum ETF support staking rewards, making holding ETFs less profitable than holding the coins directly.
LFG Labs: Looking at it from a perspective of waiting for the right moment, the Bitcoin ETF took about half a year from the start of the news to finally landing, coupled with the rhythm of the market rising. Therefore, it is not ruled out that Ethereum will follow this incremental pace. It’s even possible, from a conspiratorial point of view, that the market expects (insider) the approval this year to be hopeless.
I believe that Ethereum is still the main axis of innovation in the Web3 ecosystem at the moment. It’s just that in terms of attracting incremental users and sharing profits, other ecosystems in the current cycle have taken the lead, making Ethereum appear a bit lonely.
(Continued in next message)On the one hand, the Ethereum Foundation is facing these issues today, such as core developers making money on the side or the absolute influence of Vitalik, which may be problems that other foundations will face in the future. I believe that the Ethereum Foundation organization has antifragility and will emerge from this controversy, and Ethereum’s development is not completely controlled by the Ethereum Foundation, but also by the power of the vast developer community. This is the charm of open source and decentralization. The impact on Ethereum’s compliance path, traditional institutional entry, and broader prospects depends on the decisions of the Ethereum Foundation and the attitude of the entire developer community, but it is too early to discuss these aspects now.
Tom’s Analysis: The approval of ETFs and the entry of traditional financial institutions represent a huge impact on the existing Ethereum ecosystem, gradually weakening the influence of the Ethereum Foundation and Vitalik, and forming new checks and balances. This will lead to the ecosystem moving away from centralization, diversifying further, and potentially having a brighter future in the long run. After the Ethereum ETF approval, SoSoValue will launch relevant watchlists to provide data on ETF holdings, allowing everyone to see the impact of traditional financial institutions entering the Ethereum ecosystem.
LFG Labs: For the current Ethereum ecosystem, Vitalik and the Ethereum Foundation are both essential. One is responsible for delicately steering the direction of “orthodoxy,” while the other is responsible for rallying the community for implementation. However, the impact of this decentralized but practically central structure in sensitive regulatory eyes remains unknown, especially at sensitive nodes like ETF breakthroughs, pushing for or against “de-Vitalik and EF (Ethereum Foundation)” is not an easy balance to strike.
… (continues)
