Ethereum ETF Revolution: SEC Approvals, ARK Invest’s Exit, and Market Dynamics

Ethereum, the second-largest cryptocurrency by market capitalization, has seen significant events this month. From ARK’s unexpected withdrawal from Ethereum Spot ETF and its exponential user growth, along with its recognition as a digital oil, to the closure of SEC investigation into Ethereum 2.0 and FOMC’s monetary policy and regulatory uncertainties. This article gives a brief description about all the major happenings of Ethereum this month. 

ARK Invest out of the Game for Spot Ethereum ETFs

On May 24, 2024, the U.S Securities and Exchange Commission (SEC) approved the proposal for 8 Ethereum ETFs by VanECk, Franklin, Grayscale, Fidelity, Bitwise, ARK Invest & 21Shares, BlackRock, Invesco, and Galaxy. Unlike what happened before the approval of Bitcoin ETFs, where the SEC and the fund companies held several meetings to address various concerns, Ethereum ETFs didn’t have such a process. This resulted in the fund companies submitting their S-1 registration forms to the SEC after the approval of ETH ETFs. Usually, these S-1 forms have to be amended multiple times before the final draft would be approved.  

During one of the submissions for revised S1 forms, it was noted that Cathie Wood’s ARK Investment Management has withdrawn from the race for the Ethereum spot ETF. According to Eric Balchunas, a Bloomberg analyst, 21Shares will independently proceed with the Ethereum ETF, and ARK’s name has been deleted from all the paperwork. The fund’s name has changed from the initial Ark 21Shares Ethereum ETF to the 21Shares Core Ethereum ETF. In spite of the breakup in the cooperation between Ark Invest and 21Shares regarding the Ethereum ETF, they will continue their cooperation on Bitcoin and futures ETFs. 

In a statement, ARK said that they would not be participating in the Ethereum ETF but would continue to look for efficient ways to bring Ethereum exposure to our investors. They also said that they are fully committed to ARK 21Shares Bitcoin ETF (ARKB). 

Ethereum’s Exponential Growth in Four Years

According to VanEck analysts, Ethereum’s number of daily users has grown exponentially in a short span of four years. It has grown 9x times when compared to the data from four years ago, and this number is expected to continue increasing because of the recent approval of Ethereum ETFs.  

Bitwise reported that in Q1 of 2020, Ethereum had only an average of 250,000 daily users in the ecosystem. However, this number has grown to over 2.25 million users by Q1 of 2024, which shows an increase of 9-fold. There are several reasons for the rapid rise, such as increasing user adoption of crypto, well-developed layer 2 ecosystems on the Ethereum blockchain, participation of community members in governing Ethereum, and more.   

Bitcoin and Ethereum: Digital Equivalents of Gold and Oil

In a paper published by the world’s largest bank, the ICBC, called Macro Economy In-depth Analysis, it was stated that Bitcoin and Ethereum are digital equivalents of Gold and Oil. The paper discussed the division and integration of digital currency and the reason why they are called Digital Gold and Oil. 

For a long time, Bitcoin was referred to as digital gold because of its scarcity, ability to act as a hedge against fiat currencies, and store of value. The ICBC highlighted its nature as a digital currency, thus eliminating the challenges regarding logistics, like storage and transportation, making it accessible across borders without the limitations associated with real gold. 

Ethereum, on the other hand, is called the digital oil because of its extensive utility and as the preferred blockchain for most dApps and DeFi. It is well known for its security, scalability, and sustainability, and with the upgrade to the Proof of Stake (PoS) consensus mechanism, it also improved its energy efficiency. Furthermore, its smart contract functionalities and robust development community explains the reason behind its name as digital oil. 

FOMC Monetary Policy Cleared the Rising Bullish Trend

In mid-June, an analyst, CryptoYoddha, pointed out possible signs of Ethereum breaking out of its descending wedge pattern, which has been forming since mid-2021. By scrutinizing the altcoin market cap, it was predicted that there were chances of ‘altseason,’ meaning there would be substantial gains for Ethereum and other altcoins. 

However, all this changed when the Federal Open Market Committee (FOMC) announced its decision to keep the interest rates intact. Crypto analyst VeLLa Crypto pointed out that because of this decision, Ethereum, which tested the upper level, failed miserably, resulting in a downward trend. Furthermore, the analyst predicted that Ethereum might sweep lower lows before regaining value. FOMC’s announcement changed the initial good bullish momentum to bearish momentum. 

Gary Gensler’s Statement And the Waning Investor Sentiment 

Gary Gensler, the SEC chair, had announced that the Securities and Exchange Commission intends to accept the applicant’s S-1 registration forms for spot Ethereum ETF sometime this summer. Once the applications have been finalized and drafted, the fund companies will be able to trade ETH ETFs just like any other ETF. 

However, Crypto Michael, an analyst, in his YouTube video, emphasized the recent downtrend of altcoins, with major altcoins experiencing staggering declines. He stated that coins related to blockchain technology have plummeted more than 70% while major players in the sector have experienced drops of more than 40%. Furthermore, with the plummeting prices and the changes in both regulatory landscape, investor sentiment has noticeably waned.

The entire market is closely monitoring the approval process of the S-1 registration forms. But, repeated delays have made the market tense, and a quick resolution of the form can help boost investors’ confidence and attract large investments. Likewise, the longer the delay, the worse the investor’s confidence in them will be, and the possibility for a downward trend increases greatly.   

Closure of SEC’s Investigation into Ethereum 2.0

On June 19, Ethereum developer Consensys announced the SEC’s decision not to continue its investigation into Ethereum 2.0, meaning it won’t consider Ether as a security. The company stated that this was a significant victory for Ethereum developers, technology providers, and stakeholders. 

The announcement came in response to the letter sent by Consensys to the SEC. It stated that the approval of the ETH ETF in May was based on the fact that ETH is a commodity. Doesn’t this necessitate the closure of the Ethereum 2.0 investigation? Furthermore, in April, Consensys filed a lawsuit against the SEC because of a Wells notice suggesting that the MetaMask crypto wallet might have violated the securities laws. Although the SEC has closed the investigation regarding Ethereum 2.0, the lawsuit initiated by Consensys is still ongoing. 

The Beginning of Altcoin Season

According to Crypto Rover, the launch of Spot Ethereum ETF marks the beginning of the Altcoin season and asks investors to ready for the major event. Furthermore, a well-known analyst, Doctor Profit, also pointed out that between October 2023 and March 2024, the altcoin market experienced a surge of 150%, from $300 billion to $800 billion in market capitalization. This surge was followed by a correction of 25% in market cap, with prices dropping to around $550 billion. 

In addition, the closure of the SEC’s investigation into Ethereum 2.0 cleared all the hurdles that could potentially affect the launch of ETH ETFs. According to Santiment, after the investigation ended, Pantera Capital, a well-known venture capital firm, was planning to buy Ether worth $100 million.   

Ethereum Faces the Longest Inflationary Period

Ethereum is now facing the longest inflationary period since the Merge in 2022. The reason behind the inflationary period is the increase in the supply of coins after the Dencun upgrade, which was implemented on March 13. According to Ultrasound Money, an Ethereum data dashboard, more than 112,000 ETH has been added to the overall supply. 

In spite of the inflationary trend, after the Merge the total supply of ETH has decreased instead of increasing. Since September 2022, more than 1.5 billion ETH was burned; on the other hand, 1.36 billion ETH was newly added to the blockchain. 

VanEck Waivers Initial Fee For Ethereum ETFs

VanEck, an asset management firm that has applied for spot ETH ETFs, has announced its waiver of initial fees for Ethereum ETFs. The waiver will be in effect until the fund reaches $1.5 billion in assets or until an unspecified time in 2025. Once the threshold is reached, VanEck plans to charge 0.20% as management fees.  

Other than VanEck, its competitors in the ETH ETF market, like Fraklin Templeton, have announced their fee structures. Franklin Templeton plans to charge a fee of 0.19%, which is consistent with its Bitcoin ETF pricing.  

Ethereum ETF Trading Could Begin on July 4

The SEC is in its last stretch of making a decision regarding Ether ETFs, and if it passes, trading could begin as early as July 4. A lawyer who was involved in the ETF application stated, “We are down to the finishing touches, and approval is probably not more than a week or two away.” 

Despite the SEC being tight-lipped about this, Gary Gensler shared his insights about Ether ETF approval. He stated that the process for launching the Ether ETFs is going smoothly and that it’s really about the asset managers making the full disclosure so that those registration statements can go effective. 

Ethereum Rally During US Market Open Hours

During the last four hours of the US market opening, Ethereum rallied against Bitcoin. An analyst, Daan Crypto Trades, highlighted that a similar pattern was seen twice during the rally and raised questions about whether it would occur again. A chart comparing Ethereum’s performance against Bitcoin over a 15-minute interval shows two periods when ETH rallied against Bitcoin. Both of these rallies occurred exactly during the last four hours of the US market opening on June 25 and 26.  

Furthermore, according to Arkham, Paradigm Capital has consistently deposited ETH into Anchorage Digital during the second half of the last three months. But it broke the pattern by depositing 19.504K ETH worth $65.59 million on Thursday, which makes it the second deposit this month and the largest deposit in the past three months. 

Conclusion

The Ethereum ETF landscape has seen significant developments this month, with the SEC approving multiple ETH ETF proposals, yet ARK Invest’s withdrawal from the race marked a notable shift. Furthermore, the exponential growth of Ethereum’s user base and its increasing adoption underscore its increasing influence. However, market dynamics, such as FOMC’s monetary policy and regulatory uncertainties, have created mixed sentiments. With Ethereum facing its longest inflationary period and major players like VanEck adjusting their fee structures, the next stage of Ethereum evolution, which is Ether ETF approval, is being awaited.