The SEC has finally approved all Ethereum Spot ETFs on the 23rd of May 2024. Fidelity, VanEck, Invesco Galaxy, Ark 21Shares, and Franklin are among the few applicants which have received the approval today.
If successful Ethereum ETFs would open a new era of tech investments similar to Bitcoin ETFs which in the last 5 months have pulled nearly $58 billion in investments.
The price of Ethereum had already factored in these approvals in advance, and hence, no surprise rally was seen. However, the performance of ETFs are expected to create additional demand which might take Ethereum to new heights.
Some Ethereum ETFs have already been listed on various exchanges such as the BlackRock Spot Ethereum ETF which been listed on the DTCC as $ETHA.
VanEck, the second applicant on Dec 25, 2023, in the Ethereum ETF race has requested the SEC to approve ETFs as per the filing order. The first applicant was Invesco Galaxy Ethereum ETF on Dec 23, 2023. If approved, the VanEck Ethereum ETF looks to enjoy a nearly similar status to the BlackRock's Bitcoin ETF.
However other factors would also play a critical role besides the order of approval. The most important of them would be the annual fee that the ETF managers charge. Also, the ETF price would also play a major role. Lower ETF price typically generates more inflows as it gets easier to buy the ETFs more frequently.
The BlackRock Bitcoin ETF was the first applicant on June 08, 2023. It was also the first ETF that was approved. To date it has amassed over $17 billion in inflows.
Earlier on May 08, 2024, Grayscale Ethereum Trust, withdrew its S-1 ETF application, after learning a bitter lesson in the Bitcoin race. Otherwise, the Grayscale Ethereum ETF would have been the first approved ETF, otherwise, it would have gone through a similar route as its Bitcoin ETF case.
The Grayscale Bitcoin Trust lost as much as $26 billion in outflows before seeing its first inflow as customers preferred other low-cost Bitcoin ETFs. Grayscale's fee was at 1.5%, as much as 6x greater than the lowest fee.
Analysts forecast a Bitcoin ETF-like bull run in the case of Ethereum ETFs. After the first Bitcoin ETF approval on Jan 11, 2024, it rose from $42k to $73k within two weeks.
If Ethereum ETFs are approved today, on May 23, 2024, QCP Capital expects that it could spur a similar rally.
Analysts from QCP Capital also quoted that the volatility was at 100 which could spur a significant upside from the current levels. It is notable that in events with significantly higher volatility levels, any good news could cause a strong rally and any unexpected news could cause a strong sell-off.
A chart, shown above, from CryptoQuant, shows evidence supporting the theory of QCP Capital. There has been significant inflows from Ethereum permanent investors, people who have never been spotted to sell Ethereum.
Another piece of evidence in support of the Ethereum ETF approval has emerged from derivatives data. On May 23, Ethereum open interest spiked to $15.8 billion for the entire market.
Typically, a spike in Open Interest is seen when there is a potentially big market movement about to occur. In such events, derivative traders take bullish or bearish positions in Futures and Option contracts which lets them earn several times more money than any spot trader.
On the downside, QCP Capital analysts have also warned of a serious correction if the ETFs are rejected or even put on indefinite hold.
For the first time since their approval, Hong Kong ETFs have performed well. Against the backdrop of US Spot Ether ETF approval, on May 22, 2024, China AMC's Hong Kong ETFs saw the sale of 1.28 million shares as compared to 500k average daily sales. The two other ETFs saw a rise in subscriptions by 18%. Net ETF inflows at Hong Kong stood at HK$3.3 million.
Even in the early morning trade of May 23, 2024, the three Hong Kong Spot Ethereum ETFs saw an inflow of HK$5 million.
Despite the developments in the last 48 hours around Ethereum ETFs, senior Bloomberg analyst James Seyffart is still pessimistic about SEC's decision on 23rd and 30th May, 2024.
Seyffart acknowledged that the five spot ETH ETF applicants (Fidelity, VanEck, Invesco Galaxy, Ark 21Shares, and Franklin) had already submitted their amended 19b-4 filings via the CBOE.
Then, Seyffart commented that before any approval takes place via the S-1 filings by the ETF issuers, there was a need to see what would be the SEC's response to the 19b-4 filings by the exchanges. He further iterated that it would at least take weeks before any approval takes place.
Ethereum's Exchange Traded Product (ETP), another name for ETFs, would debut on the London Stock Exchange next week after receiving approval from the UK regulator, the FCA.
Interestingly, the ETPs were issued by WisdomTree, an US-based financial asset manager that also operates Bitcoin ETFs in the USA.
The ETP would be initially meant only for professional investors on its launch day, i.e., May 28th, 2024. The expense ratio is expected to be at 0.35%.
Fidelity, one of the largest asset managers in the US and an ETF provider has reportedly removed the ETH staking component from its S-1 ETF filings. It is assumed that the step has been taken after some "nudge" from the SEC.
The S-1 forms are basically application forms for launching any publicly traded securities in the US.
The amended filings make it clear that Fidelity would not stake the Ether which it will buy for its customers, thereby making a complete loss on the potential returns through ETH staking.
Unlike Bitcoin, bought Ethereum can be staked at validator nodes for extra income. Every time a validator gets a block reward, a portion of this reward is sent to ETH stakers as their share. At press time, the validator rewards are at 2 ETH per block or $7800 approximately.
Analysts at QCP Capital, a crypto trading firm expect the price of ETH to cross $5k once the ETFs are approved. As per the analysts, ETH might cross $4,000 instantly and a further rally could tale prices above $5k in the very short term.
Clearly, an Ethereum ETF would make is easy for ordinary investors to benefit from the crypto markets just like the Spot Bitcoin ETF. Investors could invest in ETH without getting into the complexities of owning a crypto wallet and taking care of its security.
On 21st May 2024, the global markets saw an 18% jump in the prices of Ethereum. At press time, the price of ETH was at its 24-hour peak.
As per CoinMarketCap data, in the last 24 hours, ETH also recorded a 256% jump in its traded volume. The last 24-hour trading volume of ETH at press time was $40 billion which was very close to Bitcoin's 54 billion for the same period.
Ethereum also recorded a jump in its market domination from 15.4% to 17.1% within a single day.
As of May 21, 2024, Ethereum Had 7 ETFs Up for Approval with the US SEC
Ark 21Shares Ethereum ETF
VanEck Ethereum ETF
Grayscale Ethereum Trust (Re-File) Conversion
iShares Ethereum Trust
Hashdex Ethereum Nasdaq Ethereum ETF
Invesco Galaxy Ethereum ETF
Fidelity Ethereum Fund
The SEC has asked several exchanges to submit an updated filing of Form 19b-4 under Rule 19b of the US SEC Act of 1934.
The Form 19b-4 is an intimation letter to the US Securities Exchange Commission. The form is used to let the SEC know the changes in the policy of self-regulatory bodies (SRO). An SRO is a self-regulatory body such as exchanges that have the autonomy to prepare their own policies. These organizations need to submit a report and intimidation to the SEC every time they change a self-regulatory rule.
Prior to the approval of Spot Bitcoin ETFs, these same steps were followed by the Cboe Exchange, on which most of the Bitcoin ETFs were launched.
This step was crucial for the approval of a spot Ether ETF since both the regulator (SEC) and the applicants (who are acting via the exchanges) seem to be coming on the same page.
However, the SEC could still reject the ETFs. This is because, after the Rule 19b intimidation by the exchanges, the SEC opens the changes for public comments. The highest risk for an ETF approval is at this stage since the SEC is open to interpret public comments according to its will.
In the unlikely event of rejection, Ethereum's price might fall back to $3000 registering almost 25% loss from current levels. For comparision, Bitcoin ETFs took at least 10 years from application to approval. On the other hand, it has just been a few years since the first Ethereum ETF applications were submitted