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The potential approval of spot Ethereum exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC) could reshape the crypto industry and its regulation. Industry experts believe such a move signals a major shift in the US government’s stance on digital assets.
Additionally, they see that such a move might lead to broader acceptance and integration of crypto in the financial system.
Expert Predictions on Spot Ethereum ETFs Approval
A recent report indicates that the SEC has requested asset managers to update their 19b-4 filings for listing spot Ethereum (ETH) ETFs. This move has sparked renewed optimism within the crypto community. It also led Bloomberg Intelligence ETF analysts to raise their approval odds from 25% to 75%.
Alex Thorn, Head of Research at Galaxy Digital, highlighted the nuanced approach the SEC might take. He suggested that the commission could differentiate between Ethereum as a commodity and staked Ethereum as a security. According to Thorn, this strategy would allow the SEC to maintain its previous argument while approving the spot Ethereum ETFs.
Read more: Ethereum ETF Explained: What It Is and How It Works
“In this case and perhaps for other reasons, you would expect SEC to prohibit the ETFs [issuers] from staking the ETH they hold,” Thorn added.
However, approving spot Ethereum ETFs without allowing staking might be a downside for investors seeking additional yield from staking rewards. Investors who buy, hold, and stake ETH can earn staking rewards, which provide extra yield. In contrast, spot Ethereum ETFs without staking offer exposure to ETH prices without the benefits of staking rewards.
Nonetheless, as Anthony Pompliano, a prominent investor and crypto advocate, states, approving spot Ethereum ETFs could increase institutional adoption and mainstream acceptance of digital assets.
“If they [the SEC] approve the Ethereum ETF, they are approving the entire industry. This is the last dam to be broken,” Pompliano said.
Political and Regulatory Implications
The approval of spot Ethereum ETFs could also be influenced by political considerations, especially in the upcoming US presidential election. Haseeb Qureshi, managing partner at Dragonfly Capital, noted that President Joe Biden might soften his stance on crypto to gain votes.
Qureshi suggested that an ETF approval could be the first sign of this shift. He further predicts a gradual easing of regulatory pressures on the crypto industry.
“Been saying for weeks that Biden is going to soften on crypto going into the election. He doesn’t want to lose votes in a tight race over what is ultimately a minor issue to him,” Qureshi said.
Ryan Sean Adams, the founder of the crypto community Bankless, echoed this sentiment. He suggested that an Ethereum ETF approval could signal a major pivot in the Democratic Party’s approach to crypto. He also pointed out that such a move could prevent aggressive regulatory actions like bank chokepoints and SEC lawsuits and foster support for pro-crypto legislation.
“If the Ethereum ETF is approved Thursday, I expect it signals a full 180 on the White House attack on crypto,” Adams wrote.
As Jake Chervinsky, chief legal officer at Variant Fund, indicated, approving spot Ethereum ETFs could signal a major shift in US crypto policy after the Staff Accounting Bulletin No. 121 (SAB 121) vote. He sees this as potentially being more important than the ETF itself.
Contrasting Political Stances on Crypto
Indeed, the US political parties have differing views on crypto. Former President Donald Trump, who is backed by the Republican Party, has publicly expressed his support for crypto. He also said he would accept crypto donations for his presidential campaign and stated his comfort with digital assets.
Additionally, the Republican Party itself is known for pushing crypto-focused legislation. For instance, Senator Cynthia Lummis, from the Republican Party, recently spearheaded the passage of H.J. Res 109.
During the hearing, she emphasized the dangers of SAB 121. She explained that placing customers’ assets on institutional balance sheets could jeopardize those assets during bankruptcies. Additionally, Senator Lummis has long been known for supporting the crypto industry.
Read more: How to Invest in Ethereum ETFs?
In contrast, the Biden administration has maintained a more cautious approach, with measures such as prohibiting crypto mining firms from acquiring real estate near strategic sites due to national security concerns. Additionally, they have vowed to veto H.J. Res 109, a resolution to nullify the SEC’s controversial SAB 121. They argue that overturning SAB 121 would weaken the SEC’s ability to protect investors and the financial system from crypto-related risks.
Moreover, the Democratic Party, which supports Biden, recently made headlines after the House Democrats leaders said they would not whip against the Financial Innovation and Technology for the 21st Century Act (FIT21) bill. Introduced in July 2023, the FIT21 bill aims to establish clear federal requirements for digital asset markets and balance innovation with robust consumer protections.
The evolving regulatory environment and the political implications of the upcoming presidential election present the transformative potential of Ethereum ETF approval. Industry experts and the crypto community will continue to monitor these developments closely, as they could herald a new era of institutional participation and mainstream acceptance of digital assets.