This week, the Ethereum spot ETF went from being unpopular and having an approval rate of only 7% to an approval rate of 75% overnight, and the price of ETH repeatedly broke through the $3,800 mark. To the surprise of the community, the Ethereum ETF was approved more than four months after the Bitcoin ETF was approved.

In the early morning of May 24th, Beijing time, the U.S. Securities and Exchange Commission approved the 19b-4 forms of multiple Ethereum spot ETFs, including those of BlackRock, Fidelity and Grayscale. However, although the form has been approved, ETF issuers need to make the S-1 registration statement effective before they can start trading. The SEC has just begun discussing the S-1 form with issuers. It is not clear how long this process will take, but some analysts speculate that it may take weeks.

In addition, there are 6 Ethereum spot ETFs awaiting approval. Among them, ARK 21Shares Ethereum ETF will be decided tomorrow night, followed by Hashdex Nasdaq Ethereum ETF on May 30, Grayscale Ethereum Trust on June 18, Invesco Galaxy Ethereum ETF on July 5, Fidelity Ethereum Fund on August 3, and Ishares Ethereum Trust on August 7.

However, it should be noted that this approval is limited to 19b-4 documents. The final launch of the ETF requires the SEC to approve both the 19b-4 document and the S-1 document, and it may take weeks to months before seeing the S-1 approval and the actual launch of the Ethereum ETF.

Consensys CEO Joseph Lubin said in an interview that several 19b-4 applications submitted by companies such as BlackRock will be approved by the SEC, but "S1 document approval is the key to the listing of these new ETFs, which may be delayed for a while. It is not clear whether it will be delayed. I guess this is a huge political issue now."

After personally experiencing the bull market brought by Bitcoin ETF, as the first Ethereum spot ETF, VanEck's approval undoubtedly brought great stimulus to the market. Ethereum prices experienced a short-term sharp fluctuation in the early hours of this morning. After the pin fell to US$3,523, it briefly broke through US$3,900, with an amplitude of more than 10%. As of the time of writing, the price was US$3,811.

What difficulties did the Ethereum spot ETF overcome?

Securities and POS concerns

In the past six months, the approval progress of the Ethereum ETF has been a concern of the community. After this approval, several previous negative views have also been responded to one by one. Unlike the Bitcoin ETF, the road to the approval of the Ethereum ETF has experienced many obstacles.

Since Ethereum conducted IC0 in 2014 and raised funds, this financing behavior may make ETH be regarded as an asset with securities attributes. In addition, since Ethereum theoretically has no total upper limit. Under the PoS mechanism, the issuance of ETH is related to the activity of the network. The behavior of large fund holders may cause ETH price fluctuations. According to Glassnode's previous statistics, nearly 55% of the ETH supply is held by 1,041 addresses, which can significantly affect the upgrade and operation of the Ethereum network.

This also makes the SEC believe that the high concentration of ETH holders will increase the risk of market manipulation. Alex Thorn, head of company-wide research at Galaxy Digital, was pessimistic about the approval of the Ethereum ETF based on this.

According to Alex's report, after Ethereum switched to a new governance model called "Proof of Stake (POS)" in September 2022, the U.S. Securities and Exchange Commission (SEC) opened an investigation into the Swiss-based Ethereum Foundation.

Although "Proof of Stake" can help Ethereum get rid of the defect of energy waste and use a model that relies on a trusted validator network, it actually provides the SEC with a new excuse to try to define Ethereum as a security.

As a compromise, the companies applying for ETFs this time, such as Ark Invest, 21Shares, and BlackRock, have deleted the pledge part in their ETF proposals, indicating that they will not pledge part of the trust's assets. This measure reduces the risk of ETH being regarded as a security, because staking may involve expectations of future returns, which is precisely a characteristic of securities attributes.

The prelude to Hong Kong Ethereum spot ETF

Looking back on the crypto market this year, Ethereum appears to be very weak compared to the strength of Bitcoin. The price and increase were not as good as Bitcoin before, and not as good as altcoins later. During this period, Hong Kong gradually shifted to a more friendly policy stance towards cryptocurrencies, which enabled its Ethereum spot ETF to be approved before the United States, which brought huge benefits to Ethereum.

On April 15, 2024, the Hong Kong Securities and Futures Commission officially announced the list of approved virtual asset spot ETFs, including Bitcoin spot ETF and Ethereum spot ETF under China Asset Management (Hong Kong), Harvest Global, and Bosera International.

These six spot ETF products opened for new subscription from April 25 to 26 and were listed on the Hong Kong Stock Exchange on April 30. This is also the first time that Ethereum spot ETF has landed on a large exchange.

Currently, Hong Kong spot cryptocurrency ETFs are mainly issued by China Asset Management (Hong Kong), Bosera Funds (International) and Harvest International, including Bosera HashKey Bitcoin ETF (03008), Bosera HashKey Ethereum ETF (03009), China Asset Management Bitcoin ETF (03042), China Asset Management Ethereum ETF (03046), Harvest Bitcoin Spot ETF (03439) and Harvest Ethereum Spot ETF (03179).

In the community's research and analysis, the reason why Hong Kong approved Ethereum spot ETFs earlier than Europe and the United States is not only due to its flexible regulatory environment and open attitude towards financial innovation, but also affected by key factors such as strong market driving force, geographical and strategic advantages, and the first step to seize pricing power.

Related reading: "What does the approval of Hong Kong BTC and ETH spot ETF mean to the industry? "

Although many community members were not optimistic about this matter at first, they believed that it had no effect from a market perspective. Now that the US SEC has changed its attitude towards Ethereum and approved VanEck's application, even if the approval of the 19b-4 document alone does not guarantee the final approval of the ETF, in such a crazy market, any positive factors can be regarded as a huge victory. Perhaps as Kong Jianping, director of Hong Kong Cyberport, said, "Hong Kong's first approval of the Ethereum ETF is a life-saving straw for Ethereum."

What impact will the approval of Ethereum spot ETF have?

The approval of Ethereum spot ETF may be unexpected. Unlike Bitcoin spot ETF, investors began to lay out their plans half a year before Bitcoin spot ETF was approved, and there was a large-scale inflow of funds. But for the crypto industry, the approval of Ethereum spot ETH is still a milestone event, and the impact it brings has also laid a positive foundation for the future development of the crypto industry.

Is there a way out for altcoins?

The most direct impact of the approval of spot ETFs will be reflected in prices. Bitcoin has risen by 75% since the approval of spot ETFs, and the impact of the approval of Ethereum spot ETFs on the price of ETH is evident. However, the news of the approval of Ethereum ETFs did not immediately shake up the altcoin sector, and there was a slight drop compared to the previous few days.

“Upon approval, we expect the spot Ethereum ETF to drive inflows of 2.39-9.15 million Ethereum in the first 12 months after approval,” said Geoff Kendrick, head of foreign exchange research and digital asset research at Standard Chartered Bank. “In U.S. dollar terms, this is roughly equivalent to $15 billion to $45 billion in assets,” he added.

Kendrick added, “Given that we now see Bitcoin reaching $150,000 by the end of 2024, this means that Ethereum will reach $8,000.”

In addition to the impact on the price of ETH itself, the Ethereum spot ETF will also have a positive impact on the altcoin market. Because the absolute majority of altcoins in DEX use ETH as a trading pair, the rise of ETH will bring about a passive rise in altcoins.

In addition, some market opinions believe that with the approval of the Ethereum spot ETF, it will be a strong reference for more cryptocurrencies to apply for ETFs in the future.

Crypto regulatory policies may change

Another important impact of the approval of the Ethereum spot ETF is that the attitude of US regulators towards crypto policies has changed.

The curtain of the US election has opened, and the inclinations shown by the Democratic and Republican parties towards the crypto industry are worthy of attention.

Previously, former US House Speaker Nancy Pelosi was considering supporting a Republican-backed crypto bill FIT21 when the House voted this week. In addition, there is also a bill on cryptocurrency accounting standards SAB121 that will be resolved in the near future.

《Critical moment! Major progress in the US encryption bill will be decided at the end of the month》

After the Ethereum spot ETF was passed, the mainstream market view is that this has a positive impact on the regulatory environment of cryptocurrencies.

Previously, Alex Thorn, head of research at Galaxy Digital, said that the SEC's regulatory attitude towards Ethereum will try to find a balance between the following two: "ETH" itself is not a security, while "pledged ETH" (or more far-fetchedly, "pledged ETH as a service") is a security.

This is very similar to the demands in the FIT21 Act, which is to clarify which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which digital assets are regulated by the Securities and Exchange Commission (SEC). This is important because there are key differences between the definitions of "commodities" and "securities," which will have an impact on how they are regulated.

In short, as a crypto asset class with smart contracts, ETH will have a profound impact on the crypto industry if the spot ETF is passed.

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