In a monumental landmark decision for the cryptocurrency world late on Thursday, the Securities and Exchange Commission (SEC) of the United States approved significant rule changes that will allow the listing and trading of spot Ethereum exchange-traded funds (ETFs) on major American exchanges. This move comes months after the approval of spot Bitcoin ETFs that took place in January this year.
This decision marked another significant milestone in the route of mainstream adoption of cryptocurrencies by the Western markets.
What are Ethereum ETFs?
Ethereum ETFs are exchange-traded funds that track the price of ether (ETH). Ether is the native token of the Ethereum blockchain a major competitor of Bitcoin. Following the decision, investors will soon be allowed to buy and sell shares that represent ownership of ether. This will be conducted without having to directly hold the cryptocurrency itself.
It is worth noting that there are two main types of Ethereum ETFs. The one is the Futures-based ETFs that trade contracts of ether features and the other is the Spot ETFs that hold actual ether in custody. The latter means that people are directly responsible for storing securely the tokens in comparison with owing futures shares or contracts of ether.
The recently approved ETFs are spot ETFs and are widely considered the “holy grail” by many crypto investors around the world.
The officialisation of the approval by SEC will come in two stages. At first, SEC accepted the approval of “19b-4” filings that allow Cboe, Nasdaq, and the New York Stock Exchange (NYSE) to list Ethereum ETFs. Later, SEC is expected to approve the “S-1” registration statements of individual issuers, which is still pending to this day.
Many established global ETF providers like BlackRock, Fidelity, VanEck, Grayscale, and others have already filed to launch Ethereum ETFs in the coming period. While the 19b-4 approvals are a fundamental and huge first step for the world of cryptocurrency, trading cannot begin until the S-1 statements are approved, which could take anywhere from several weeks to months.
The approval of Ethereum ETFs is expected to allow significant institutional investment and attract new, significant levels of capital into the Ethereum ecosystem. Analysts have already predicted that once the ETFs begin to be traded, billions of dollars could flow into the Ethereum ETFs market, similar to the staggering $13 billion that has gone into Bitcoin ETFs so far.
This major influx of capital in the Ethereum world could have several effects, with the main one being the significant Boost that ether’s price is going to get in the short term. This is expected as ETF providers buy the cryptocurrency to back their funds. Additionally, increasing liquidity and price stability will be among the main asks for the longer-term period as more mainstream investors enter the market, bringing a clear acceleration to the growth and adoption of the broader Ethereum ecosystem.
However, there are also potential risks, as it is the case with every aspect of investing in our modern world. The main concern right now for the Ethereum crypto world is the increased levels of volatility if large ETFs need to sell during market downturns which do happen often. The growth of Ethereum ETFs could also concentrate even more ether holdings among a very few selections of large providers, raising concerns about centralization in a decentralized cryptocurrency like Ethereum.
Differences from Bitcoin ETF Approval
While the Ethereum ETF approval shares a large number of significant similarities with the earlier Bitcoin ETF approval, there are some key differences that potential investors should keep in mind.
For example, SEC’s evaluation of whether ether should be classified as a commodity or security along with the potential for future Ethereum ETFs to pay dividends from staking, something that is not the case with Bitcoin ETFs, are issues that have to be considered before deciding an investment move.
These differences added complexity to the SEC’s approval process and will continue to shape the development of the Ethereum ETF market going forward.
What the Future Holds for Ethereum
The approval of spot Ethereum ETFs by SEC is definitely another major step in the overall and holistic maturation of cryptocurrencies as an asset class in the market. While the ETFs are obviously not cleared to begin trading yet, many people who follow the cryptocurrency world developments expect it is only a matter of time following the 19b-4 approvals that happened on Thursday.
For the next several weeks all eyes will be on their impact on ether’s price, the growth of the Ethereum ecosystem as a whole, and the further process of making the big cryptocurrencies more of a mainstream digital assets in the financial world. The potential success of Ethereum ETFs could pave the way in the future for similar products based on other major cryptocurrencies.