Ethereum Spot ETF: why are markets racing ahead?

Tuesday, May 21, 2024

According to Bloomberg analysts, the US Securities and Exchange Commission (SEC) may approve Ethereum Spot ETFs on Thursday 23 May. The price of ether has risen by more than 18% in just a few hours, to over $3,600.

While the approval of Ethereum Spot ETFs seemed to have been put off indefinitely, Bloomberg has just revived the issue. And in a big way! On Monday, two of the company's star analysts indicated that the probability of the US stock market regulator (SEC) validating the Ethereum Spot ETFs had "risen sharply".

"We now consider that the probability of validation has risen from 25% to 75%", explained Eric Balchunas, ETF specialist at Bloomberg, on Twitter. As a reminder, the SEC is due to rule on the VanEck case by Thursday. Nine other companies, including BlackRock and Fidelity, are in the starting blocks.

In the wake of Bloomberg's commentary, the ether (ETH) rose by more than 18%, from 3,000 dollars to more than 3,600 dollars. Bitcoin, meanwhile, broke back through the $70,000 mark for the first time since early April.

According to the evidence put forward by Bloomberg, the SEC could catch everyone off guard on the condition that Ethereum Spot ETFs no longer incorporate "staking" into their model. According to Coindesk, the SEC has in fact reportedly asked companies that have filed ETFs to review them to remove the staking part and keep only the part on the underlying asset.

For months, the SEC has considered that staking - which provides a reward in exchange for securing the network - is a system similar to dividends with shares and therefore falls under the legislation specific to financial securities (security).

In an interview in March with The Big Whale, Cathie Wood, founder of Ark Invest, had explained that the SEC would "reject staking" and that this could have an impact on Ethereum Spot ETF filings. Ark Invest has since withdrawn staking from its Ethereum Spot ETF filing.

The arrival of Ethereum Spot ETFs has been eagerly awaited by investors because it would allow many investors to gain easy exposure to the market's second-largest cryptocurrency.

What is an Ethereum Spot ETF?

An Ethereum ETF aims to offer exposure to the ether price in a format that can be bought and sold on traditional exchanges, just like shares. This means investors can invest in Ethereum without having to manage crypto portfolios or worry about the technical aspects of holding cryptocurrencies, such as private keys and portfolio security.

How would an Ethereum Spot ETF work?

An Ethereum ETF would work by pooling investors' money together to buy ether, which the fund would hold directly. Each share in the ETF would represent a share of these ethers, giving shareholders indirect exposure to the price of the ether. The value of the ETF share would fluctuate with the market price of ether.

Fund managers such as BlackRock and Ark Invest would be responsible for asset selection, security, storing the ethers and, potentially, making decisions about staking and other investment opportunities in the Ethereum ecosystem.

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This analysis is not investment advice. It has been prepared without taking into account your personal situation, particularly your financial situation, risk profile, and investment objectives.

Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial, and accounting advisors.

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