On May 23, 2024, the US Securities and Exchange Commission (SEC) approved eight applications for the launch of spot Ethereum-ETFs. The move came as a surprise to many in the crypto community, who perceived it as a complete capitulation.
Let’s discover why the approval of spot Ethereum-ETFs in the USA is one of the most important events for the crypto industry and what consequences it might lead to.
What are spot Ethereum-ETFs and what’s are their purpose?
A spot Ethereum-ETF is an exchange-traded fund based on the second-largest cryptocurrency, Ethereum. The term "spot" indicates that the issuer of the tool holds actual Ether, rather than derivative instruments such as futures or options.
The launch of such funds in the USA, the largest centre of the crypto industry, is an important step because spot ETFs simplify cryptocurrency investments for institutions, thus opening up pathways for capital inflows into the digital asset market.
The cryptocurrency "ETF fever" began in 2023, when the largest asset management company, BlackRock, applied for the launch of a spot Bitcoin-ETF. Members of the crypto community perceived the entry of such a mogul into the race as a victory, and they were right. Since 2013, the SEC had consistently rejected applications from companies to launch spot Bitcoin-ETFs. But with the arrival of BlackRock, everything changed, and on January 10, 2024, the Commission gave the green light.
Ether’s reaction to the tool’s launch
Ethereum, along with the entire crypto market, expectedly skyrocketed amid SEC's approval. Ether itself started to rise as early as May 20. On that day, news spread across the web that the Commission had approached the issuers of applications for the launch of spot Ethereum-ETFs with a request to make adjustments to the documents. A similar step preceded the long-awaited approval of spot Bitcoin-ETFs. Therefore, members of the crypto community perceived it as the SEC's preparation for the launch of the Ethereum version of the tool.
From May 20 to May 23, Ether gained almost 30%. Bitcoin and many altcoins also showed positive dynamics, as the victory of the Ethereum team over the SEC was seen as a general triumph of the crypto community, which could lead to the positive consequences for the entire digital asset market.
Ethereum chart. Vertical line is the date of spot Ethereum-ETF approval in the US. Source: Investing
What's wrong with Ether?
The SEC believes that there is only one legal cryptocurrency in the digital asset market—Bitcoin. The watchdog sees signs of a commodity in the coin.
From the SEC's point of view, Ethereum is an illegally issued security. This arises because Ether runs on the Proof-of-Stake (PoS) algorithm, which the Commission believes makes the cryptocurrency similar to a security. Such assets need to be registered with the SEC before issuance. As you might guess, the creators of Ethereum did not seek the Commission's "blessing" before launching the project, raising questions about the legality of ETH.
Earlier, the itez published a detailed guide explaining how the PoS algorithm affects the status of a cryptocurrency in the eyes of the SEC and how the regulator combats illegally issued assets.
Why the launch of spot Ethereum-ETFs in the USA is so important
The SEC's claims, according to members of the crypto community, reduced the chances of approval of spot Ethereum-ETFs to a minimum. Despite this, the Commission greenlighted the tool. Members of the crypto community believe that this step is equivalent to the SEC's capitulation, and here's why:
- Ethereum is far from the only cryptocurrency that the Commission sees as an illegally issued security. There are about 70 "outcast" coins in the market.
- Ether is not the first crypto project that the SEC has accused of illegally issuing a security. One of the prominent cases is the Commission's confrontation with Ripple. In December 2020, the watchdog accused the project of issuing unregistered securities in the form of XRP tokens. The parties' showdown is still ongoing, but members of the crypto community are confident that the SEC has already run out of arguments, which means Ripple is on the verge of victory. The victory of the crypto project over the Commission would technically mean the victory of all crypto projects facing similar accusations. In this matter, Ethereum has outpaced Ripple.
- The approval of spot ETFs on the supposedly illegal ETH means that the SEC has no solid evidence of the guilt of cryptocurrency issuers, so other "outcast" coins also do not violate the law.
Members of the crypto community perceived the approval of spot Ethereum-ETFs as the SEC abandoning its claims against crypto projects accused of illegal issuance. The step reduces pressure on the crypto industry and increases the attractiveness of digital assets in the eyes of investors. Therefore, amid the approval of ETH exchange-traded funds in the USA, the market demonstrated positive dynamics.
It should be noted that the SEC has not made any official statements indicating its denial of claims against crypto projects, including Ethereum. The Commission will probably have to find another angle of attack. Nevertheless, the approval of ETH-ETFs has already happened, which means the crypto community has proven the legality of such coins as Ether.
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
