The recent approval of spot Ethereum ETFs by the SEC may offer some insight into Ether’s non-security classification, but experts predict potential negative consequences for the ecosystem.
After extensive deliberation and delays, the U.S. Securities and Exchange Commission (SEC) has finally given the green light to spot Ether (ETH) ETFs. However, the approval is currently limited to 19b-4 filings, and it may take several months for actual trading authorization as S-1 applications from issuers are still being reviewed.
According to Bloomberg’s James Seyffart, the process of obtaining trading authorization could be prolonged, possibly spanning over multiple months. While the industry celebrates this progressive move, following the approval of spot Bitcoin (BTC) ETFs, three experts interviewed by crypto.news suggest that spot Ether funds could have far-reaching implications.
Centralization and the issue of dormant Ether
One of the key distinctions between ETFs based on BTC and ETH is the varying consensus mechanisms employed by their respective blockchains. Bitcoin utilizes a proof-of-work model, incentivizing miners through block rewards. In contrast, Ethereum, even before transitioning to a proof-of-stake design, powered a thriving defi landscape and was specifically designed for on-chain deployment.
Data scientist Carlos Mercado from Flipside Crypto expressed concerns about holding ETH idly in funds, comparing it to hoarding gasoline barrels. He argued that it underutilizes the asset’s potential. While staking could address this issue, the absence of staking features in updated spot Ethereum ETF applications raises questions about the utilization of ETH.
Regulatory clarity and decentralization
Tom McClean, a quantitative developer at Vega Protocol, pointed out that excluding staking features from ETFs may alleviate concerns regarding centralization but fails to fully address the issue. He warned that ETFs solely buying, holding, and selling Ether tokens could lead to a large amount of unproductive ETH within the system.
McClean and Justin d’Anethan, Head of Business Development (APAC) at Keyrock, believe that the approval of spot Ether ETFs could prompt investors and issuers to seek regulatory clarity on staking. D’Anethan noted that the approved filings suggest Ether is viewed as a non-security by regulators. However, the SEC’s stance on Ether’s financial instrument status remains ambiguous.
In conclusion, while the SEC’s approval of spot Ether ETFs without a vote from Gary Gensler indicates progress, the implications for the ecosystem and regulatory landscape are yet to be fully understood.