Blockchain Pills(18/365)-ETF Spot on Ethereum Approved: Who Will Be Next? | by Fausto Castellano | May, 2024

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In a month of May filled with memorable events for the world of cryptocurrencies, the most sensational news has undoubtedly been the approval of spot ETFs on Ethereum. After weeks of speculation and signs of weakness from Ethereum in the market, the Securities and Exchange Commission (SEC) has finally given the green light to these financial instruments. This move represents a groundbreaking change for the cryptocurrency sector, opening up new opportunities for both institutional and retail investors.

The Road to Approval

The announcement of the approval of spot ETFs on Ethereum came almost unexpectedly, despite hints being in the air. Bloomberg had already increased the likelihood of short-term approval from 25% to 75% within days, and Barron’s had immediately referred to it as a “done deal.” The SEC had requested issuers to make modifications to their approval applications, focusing particularly on staking, which was removed from the filed documents, as demonstrated by Fidelity, the first to comply.

The approval process involved two different modules filed with the SEC, with different approval mechanisms. The second module is still under SEC review and may take several weeks to be approved, meaning trading of the ETFs will have to wait a bit longer to commence.

Market Impact

The news of the approval of spot ETFs on Ethereum had an immediate impact on the market. The ETF sector showed a bullish trend in inflows, with Blackrock’s IBIT recording significant increases despite decreases in GBTC outflows. Other ETFs, such as those on Bitcoin, indirectly benefited from the news, with Bitcoin reaching new highs surpassing $71,000.

The market reaction wasn’t limited to Bitcoin. Altcoins, particularly those tied to the Ethereum ecosystem, recorded exceptional performances. Ethereum layer-2 and liquid staking protocols saw impressive increases, with Total Value Locked (TVL) growing by 30% in a week, nearly reaching $50 billion. This rally had a positive chain reaction effect on other cryptocurrencies and sectors of the crypto market.

Ethereum: Innovations and Challenges

Ethereum has a historical role in the cryptocurrency sector but has faced several challenges over the years, mainly related to scalability. To address these issues, developers introduced rollups, layer-2 solutions that enhance transaction efficiency. However, competition from other layer-1 blockchains like Solana, Aptos, and Sui continues to pose a challenge.

Recently, Ethereum has seen the introduction of layer-3, an additional level of innovation that could further improve blockchain performance. Despite these efforts, it remains to be seen whether Ethereum will maintain its competitiveness in a rapidly evolving market.

What’s Next?

The recent approval of the first spot ETF on Ethereum in the United States marks a crucial moment for the cryptocurrency market. This event is significant for several reasons. Firstly, the adoption of a spot ETF on Ethereum could significantly broaden access to this cryptocurrency, allowing institutional and retail investors to invest in Ethereum without directly managing the tokens. This financial instrument simplifies the investment process, reducing the technical and security barriers associated with direct cryptocurrency ownership.

Secondly, the approval of a spot ETF could stimulate Ethereum demand, potentially positively influencing the cryptocurrency’s price. This phenomenon has been observed in the past with Bitcoin ETF approvals, which helped increase Bitcoin’s market value due to inflows of new investments.

Finally, this approval marks another step towards the maturity of the cryptocurrency market, highlighting increased acceptance and regulation by financial authorities. This could lead to a more stable and secure investment environment, encouraging further developments in the sector and increasing investor confidence.

Who Will Be Next?

With the approval of spot ETFs on Ethereum, attention has shifted to which cryptocurrency might be next to obtain an ETF. Strong voices point towards Solana, seen as an ideal regulatory counterpart to Ethereum. While these remain speculations, it’s plausible that other cryptocurrencies will soon start to be considered for ETF products, creating a fundamental precedent that could open further investment avenues.

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