Ethereum ETFs Get SEC Nod Amid Political Drama — What’s Next for Crypto?
In a shocking twist, the US Securities and Exchange Commission has changed its stance on Ethereum ETFs, and analysts expect them to be approved on May 23rd. This comes after months of radio silence from the regulator, who has been unfriendly to cryptocurrencies and pursuing lawsuits against some of the biggest names in the space. Let’s break down what the ETF means for the market, the sued companies, and the future of crypto regulation in the United States.
After the Bitcoin ETF approvals in January, investors eyed May as the deadline for the SEC to decide on Ethereum ETFs. Though the two seem similar, Bitcoin has been declared a commodity, but the verdict is still out on Ethereum’s status. Though SEC Chairman Gary Gensler and the Commodities and Futures Trading Commission (CFTC) previously labeled it as a commodity, there were rumors that the SEC wanted to classify it as a security and have jurisdiction over it in the United States. Their argument lies in its status as a proof of stake blockchain, allowing users to stake to earn more ETH. This is why the SEC or some other regulator subpoenaed the Ethereum Foundation and sought a legal justification for the security classification. Though there was initial optimism about the passage of an Ethereum ETF, this quickly waned as it became evident that the SEC was not communicating with issuers — a sign that they planned to decline the applications.
However, crypto made headlines for a pivotal reason recently, which may have changed the mind of the Biden-appointed Gensler: politics. The House and the Senate recently passed a bill to overturn the SEC’s SAB121, a bulletin preventing highly regulated financial entities from custodying cryptocurrencies. Both houses passed this bill even after Biden advised against it, warning that he would veto it in support of his SEC. Only a couple of days after this event, it was revealed that the SEC was changing its stance on the ETFs, likely due to crypto becoming a bipartisan political issue that could sway voters in the upcoming election. The main concession made by applicants was to remove ETH staking from their ETFs.
With the market betting on a <10% chance that the ETFs would be approved, this news caused a massive spike in the ETH price from $3,000 to $3,700, bringing the rest of the market with it. In the months leading up to the expected Bitcoin ETF, the price of BTC went from $30,000 to over $40,000 over a couple of months, with prices peaking at $73,000 a few months after launch. Given the institutional capital that will be able to flow into Ethereum, its very possible this rally is just getting started and that the bull market is back on.
The SEC’s change in direction from the ETF also bodes well for companies facing lawsuits from the regulator, including Coinbase, Uniswap, and Consensys. Though each lawsuit is unique in scope, they generally have to do with the SEC alleging that each entity acts as an unregistered broker, securities offerer, or exchange. The companies are fighting back with massive war chests and compelling arguments about their companies and the status of cryptocurrencies. With the SEC and Gensler unable to get their way on the ETF, it is likely that these companies may have their cases thrown out or watered down significantly.
With the 2024 election heating up, this also bodes well for both candidates’ stance on the industry. Trump has been more vocally supportive up until now of cryptocurrencies, as he accepts them as campaign donations and has an NFT collection, though Biden is demonstrating through legislation his support for the industry. The recent overturn of SAB121 by Republicans and a dozen Democrats in the Senate, all of whom voted across party lines, shows the power of crypto in Congress continues to grow, likely thanks to Coinbase and other companies’ concerted lobbying efforts. The industry spent $23 million on lobbying in 2023, with $5.6 million in the first quarter of 2024 alone. This trend will likely increase as the election looms closer and both candidates vie for the younger demographic.
For the first time in a long time, cryptocurrency regulation in the United States is looking positive and we got an unexpected, extremely significant piece of news from the government. As Ethereum becomes legitimized in the eyes of institutions alongside Bitcoin, we may see ETH regain some of its market share compared to Bitcoin and possibly reach $10,000 by the end of the year. Only time will tell if investors buy the Ethereum vision the same way they do Bitcoin, but introducing an ETF can only be positive for the industry.
By Lincoln Murr
