The SEC is set to finalize approvals for Ethereum ETFs by the end of summer, potentially spurring market accessibility for Ether trading. Meanwhile, long-term holders are accumulating significant amounts of ETH amid price drops, indicating strong investor confidence.
Quick Take
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SEC Chair Gary Gensler anticipates completing the approval process for Ethereum ETFs by the end of summer 2024.
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Long-term holders accumulated 298,000 ETH, worth approximately $1.34 billion, during a recent price drop. ETH faces significant resistance around the $3,500 mark, with potential for further decline.
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Institutional investors may find spot Ether ETFs more appealing if staking is approved, which could significantly increase net inflows.
SEC's Anticipated Approval for Ethereum ETFs
Ethereum enthusiasts and investors have a lot to look forward to this summer. U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler recently informed senators that the final approvals for exchange-traded funds (ETFs) trading Ethereum’s ether (ETH) should be completed by the end of the summer. This announcement was made during a budget hearing before the Senate Appropriations Committee, where Gensler highlighted the smooth progress in the registration process for these ETFs.
The SEC had previously granted initial approval for a group of ETFs, and now the final registration requirements, known as S-1 filings, are being handled at the staff level. Once these filings are approved, the new ETFs can be listed, making it easier for investors to trade funds that hold actual ether. This move follows the precedent set by the establishment of bitcoin spot ETFs.
Regulatory Uncertainty: Is Ether a Commodity or Security?
“While not all crypto are crypto securities – some are under Chair Behnam's jurisdiction – those that are have an obligation to disclose to the public,” Gary Gensler, SEC Chair.
Despite the SEC's progress, Gensler remained cautious about classifying Ether as a commodity. When directly asked, he did not provide a definitive answer, maintaining the agency's uncertain stance. In contrast, Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam confirmed that Ether is a commodity during the same hearing. This distinction is crucial as it determines the regulatory authority over various tokens. The SEC oversees securities tokens, while the CFTC handles the rest. Gensler has consistently argued that most digital assets should be considered securities but has avoided specifying which ones apart from those listed in enforcement actions.
Gensler criticized the crypto industry for disregarding regulatory rules and suggested that the CFTC is not currently equipped to oversee a disclosure-based system like the SEC. Behnam acknowledged this, noting that the CFTC lacks the necessary tools, such as registration and oversight, to effectively police the crypto markets. He emphasized the need for a bigger budget to acquire these capabilities, especially if legislative efforts assign more responsibilities to the CFTC.
The Rise of Long-Term Ether Holders
ETH HODLers inflows | Source: CryptoQuant
In a different context, Behnam addressed the agency's stance against prediction markets, which have gained popularity on platforms like PredictIt and Polymarket. He stated that commoditizing elections is against existing law, and the CFTC is taking steps to ban such contracts.
Meanwhile, Ether has experienced significant activity among long-term holders. On June 12, 298,000 ETH tokens, worth approximately $1.34 billion, were acquired by accumulation addresses. This surge in demand came as Ether's price dropped by 2% over 24 hours after the Fed’s latest FOMC meeting. Julio Moreno, head of research at CryptoQuant, noted that this was the second-highest buying activity on record for permanent holders.
ETH/USDT price chart | Source: KuCoin
Despite the recent price decline, Ether has shown resilience, staying above the $3,400 mark after initially falling below $3,800 on June 8. Past price action suggests that the $3,500 level presents significant resistance for ETH bulls. A similar drop in April led to a 25% decline, reaching a low of $2,814 by early May.
Institutional Interest and the Staking Factor
The anticipation of final approval for spot Ether ETFs is adding to the market's excitement. Gensler hinted that the SEC could sign off on these approvals before the end of September. In May, the SEC granted preliminary regulatory approval for spot Ether ETFs from eight applicants. However, trading can only commence once the S-1 registration statements are also approved.
Institutional investors are closely watching these developments. Cryptocurrency derivatives trader Gordon Grant noted that the appeal of spot Ether ETFs is diminished for institutional players until staking is available. Without staking, institutional traders might prefer on-chain solutions. Staking Ether involves depositing the digital asset to help secure the Ethereum blockchain and earning yield in return. Current applications for spot Ether ETFs have excluded staking components due to regulatory uncertainties.
JP Morgan analysts have also pointed out that the lack of staking makes spot Ether ETFs less attractive compared to platforms offering staking yield. They estimate that spot Ether ETFs could attract up to $3 billion in net inflows for the remainder of the year, potentially rising to $6 billion if staking is permitted.
Hong Kong's Stance on Ether ETFs and Staking
Interestingly, Hong Kong asset managers are working to include staking within their spot Ether ETFs. Animoca Brands Chairman Yat Siu mentioned that discussions are ongoing, and staking approval in Asia is likely to happen before it does in the U.S.
As the summer progresses, the crypto community will be keenly watching the SEC's actions and the market's response to these developments. The approval of spot Ether ETFs could mark a significant milestone for Ethereum, opening up new investment opportunities and potentially driving further demand for the cryptocurrency.
