WuBlockchain Weekly: Unexpected Approval of Ethereum Spot ETF: Potential Impacts and Top10 News

May 24, 2024

1. SEC Approves BlackRock and Fidelity’s Eight Ethereum ETFs on Thursday link

Ethereum Spot ETF Receives SEC Approval, ETH Recognized as a Commodity

On Thursday evening Eastern Time, the U.S. Securities and Exchange Commission (SEC) disclosed that it has approved Form 19b-4 filings for eight issuers of Ethereum ETFs, including BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy, and Franklin Templeton. Although ETF issuers still need to have their S-1 registration statements become effective before trading can commence, it is currently unclear how long this process will take. Some analysts speculate it could take several weeks. In the meantime, VanEck has promptly submitted a revised S-1 application for its spot Ethereum ETF. BlackRock’s spot Ethereum ETF has already been listed on the DTCC website with the ticker symbol ETHA.

Consensys remarked that Thursday’s approval indicates that the SEC regards ETH as a commodity rather than a security, contrasting with its previous stance earlier this week. While Consensys welcomes the approval of the spot ETH ETF, viewing it as a step in the right direction, they criticized the SEC for its ad hoc approach to digital asset regulation. According to Consensys, no other industry, market, or asset class faces such deliberate regulatory overreach, which is unfair to market participants, contravenes the rule of law, and stifles innovation. They expressed support for bipartisan efforts in Congress to establish clear and reasonable regulations.

Variant Fund’s Chief Legal Officer Jake Chervinsky had previously stated on May 21 that the approval of a spot ETH ETF would astonish everyone familiar with Washington’s regulatory environment, but that does not preclude it from happening. The approval of the ETF may signal a significant shift in U.S. cryptocurrency regulatory policy, particularly in light of the recent vote on SAB 121. This development could have broader implications than the ETF approval itself.

Institutions Predict Optimistic Future for Ethereum

OKX analysis suggests that if the SEC approves a spot Ethereum ETF this week, institutional investors could invest $500 million in the first week. OKX’s Global Chief Commercial Officer, Lennix Lai, stated, “The approval of an Ethereum ETF could be more significant than a Bitcoin ETF.” Lai also noted, “The potential approval of Ethereum as a tradable proxy within a traditional framework could spark a new wave of institutional demand.” He believes that following the approval of the Ethereum ETF, the price of Ethereum could quickly reach a new all-time high. Since Monday, the price of Ethereum has already surged by 24%.

Ethereum co-founder and Consensys CEO Joe Lubin highlighted that the resulting substantial demand for ETH could lead to a supply squeeze. The natural and pent-up demand for ETH through the ETF will be significant. In the case of Bitcoin, authorized participants — companies that purchase Bitcoin on behalf of the ETF to create new shares — can easily buy idle Bitcoin on exchanges or through over-the-counter transactions. Currently, 27% of the total ETH supply is staked on the Ethereum network, which may make ETH’s price more responsive to capital inflows. Additionally, increased activity on the Ethereum network will promote ETH burning, further limiting supply.

Geoff Kendrick, Head of FX and Digital Asset Research at Standard Chartered, expects the Ethereum ETF to be approved this week, resulting in an inflow of $15 billion to $45 billion over the next 12 months. The bank reiterated in its Tuesday report that the ETF could push ETH to $8,000 by the end of 2024, with Bitcoin reaching $150,000 by the same time.

Bernstein analysts Gautam Chhugani and Mahika Sapra estimate that the approval of a spot Ethereum ETF could drive Ethereum prices up by 75% to $6,600. They noted that the SEC’s approval of a similar Bitcoin product in January led to a 75% increase in Bitcoin prices over the following weeks, expecting ETH to follow a similar trajectory. However, Kaiko analyst Adam McCarthy pointed out that demand for the Hong Kong ETH ETF has been low, with several days of net outflows. The lack of staking options could further impact demand.

Ethereum Staking Issues and Hong Kong’s Discussions on ETF Staking

Bloomberg reported that many in the crypto market believe that the key modifications made by issuers to their spot Ethereum ETF applications are beneficial for the Ethereum blockchain but detrimental to the ETF products themselves. Issuers, including Fidelity and Ark, have decided to remove plans for staking Ethereum in their ETFs. Staking has always been a sensitive issue for Ethereum because it allows holders to earn yields, raising questions about whether the token should be classified as a security regulated by US authorities. Some market participants argue that if the ETFs cannot stake their tokens, then the appeal of spot ETFs is diminished compared to directly purchasing stakable Ethereum.

Fox reporter Eleanor Terrett noted that spot BTC ETF issuers CoinShares and Valkyrie will not apply for spot ETH ETFs, primarily due to the lack of staking functionality. Sources indicate that the companies believe that without staking capabilities, especially in a crowded market with nine issuers, there is little value for investors.

Tree News, citing Bloomberg, reported that the Hong Kong Securities and Futures Commission is in talks to allow Ethereum ETF issuers to engage in staking. This contrasts with the US, where the latest 19b-4 filings from Ethereum ETF issuers indicate they will not participate in Ethereum staking. However, the current trading volume for Ethereum ETFs in Hong Kong remains very low.

2. Biden May Ease Cryptocurrency Policies Before Election link

Dragonfly partner Haseeb Qureshi tweeted that Biden might soften his stance on cryptocurrency policies before the election to avoid losing votes in a tight race. The approval of ETFs is the first sign of this shift, and other institutions are expected to relax their policies in the coming months. While this won’t be a complete reversal, it should be enough to reduce division. Qureshi anticipates that Trump would be more supportive of cryptocurrencies, but Biden might ease policies to prevent losing the entire crypto-voting bloc.

3. Trump Campaign Officially Accepts Cryptocurrency Donations link

On Tuesday, Trump’s campaign team announced they would begin accepting cryptocurrency donations, allowing supporters to contribute using “any cryptocurrency” via Coinbase Commerce products. This move opens a new potential funding source for Trump’s campaign, which, despite raising more funds than incumbent Democratic President Biden in April, still trails Biden in cash on hand. Cryptocurrency donations will be reported as in-kind contributions, similar to stock gifts, and the campaign team can choose whether to liquidate the cryptocurrency or hold onto it. Notably, Biden supporter Elizabeth Warren previously released a campaign ad attacking cryptocurrency, claiming she is building an “anti-crypto army.”

4. U.S. House Passes FIT21 Cryptocurrency Bill link

The U.S. House of Representatives passed the “21st Century Financial Innovation and Technology Act” (FIT21) with 279 votes in favor and 136 votes against. This legislation, primarily driven by House Republicans, aims to establish a framework for regulating the U.S. crypto market, setting consumer protection measures, designating the Commodity Futures Trading Commission (CFTC) as the primary regulatory body for digital assets and non-securities spot markets, and clarifying what qualifies cryptocurrencies as securities or commodities. Parts of the bill may change and require approval from the U.S. Senate, after which President Biden will have ten days to sign it.

However, the White House has expressed opposition to the current form of the FIT21 bill, citing inadequate consumer and investor protections for certain digital asset transactions. Nevertheless, it has indicated a willingness to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets.

Foobar, founder of Delegate, tweeted that FIT21 is not a true victory, merely shifting regulatory oversight from the SEC to the CFTC. The core issue remains: cryptocurrencies are not inherently commodities suited to traditional commodity futures frameworks, much like they do not fit within traditional securities frameworks. Just six months ago, the CFTC declared certain decentralized exchanges (DEXs) illegal, arguing they could facilitate leveraged token trading. This misuse of legal interpretations in public forums by a potentially malicious institution underscores they are not allies. Granting them greater authority is not advisable.

5. Brazil’s Cryptocurrency Regulatory Framework to be Released by Year-End link

The Central Bank of Brazil announced on Monday that it will unveil a cryptocurrency regulatory framework by the end of this year. The Central Bank has outlined at least three steps to develop this framework, including conducting public consultations on rules governing the business activities of digital asset providers, as well as formulating and refining auxiliary frameworks for VASPs operating in Brazil. According to their statement, as part of the framework development process, the Central Bank also plans to engage in internal planning related to stablecoin regulation.

6. Vitalik: We Need an Open Decentralized Protocol for Asset Transfers Across L2s link

Vitalik Buterin tweeted about the need for an open, decentralized (operatorless, managerless) protocol to swiftly transfer assets from one L2 to another L2 and integrate it into the default send interface of wallets. However, before getting too fixated on any flashy toys, he emphasized the importance of laying solid groundwork. The biggest user experience challenge, according to him, is that the L2 world doesn’t feel “like one unified Ethereum” enough. While it has improved significantly compared to a year ago, it’s still far from perfect.

He pointed out a straightforward algorithm: things that are easy to do on L1 are difficult across L2s, such as token transfers, ENS, and smart contract wallet key changes. He also highlighted ENS as one of the most successful non-financial applications, expressing surprise that more people aren’t interested in it.

Vitalik believes that in 10 years, all rollups will be ZK and every slot will submit blocks with final state roots to L1. Achieving this goal requires significant infrastructure and prover optimizations, but it is clearly the ultimate objective.

7. Uniswap Responds to SEC Wells Notice: Trading Alternative Assets link

Uniswap argues that tokens traded on its platform are not securities but rather alternative assets such as stablecoins, community tokens, utility tokens, and commodities, given its decentralized nature where the protocol does not maintain user accounts or collect personal data. Uniswap believes that pursuing this case would encourage Americans to use harder-to-regulate foreign interfaces and protocols, stifling innovation. It contends that the SEC cannot obtain the answers it seeks through litigation and calls for congressional intervention to regulate cryptocurrencies effectively.

8. Coinbase Announces Retail Launch of Oil and Gold Futures Contracts link

Coinbase has announced the launch of retail-oriented futures contracts for oil and gold starting on June 3rd. The new contracts will feature specifications of 10 barrels of oil and 1 troy ounce of gold, aimed at expanding trading opportunities in traditional markets. Coinbase Derivatives, regulated by the CFTC, already offers futures contracts for BTC, ETH, BCH, LTC, and DOGE to its clients.

9. Magic Eden, the Largest Bitcoin NFT Marketplace, Utilizes Coinbase for Small Output Handling link

Danny, founder of Deezy, discovered that the largest Bitcoin NFT marketplace, Magic Eden, is using Coinbase to help manage its small outputs. In every transaction on Magic Eden, there’s a small output included as a market fee, which individually are negligible but collectively cumbersome to consolidate. Magic Eden opts not to use its own addresses to receive UTXOs but instead uses their Coinbase account, where all these market fees accumulate. Thus, Coinbase covers the cost of consolidating these outputs.

Mononaut, founder of Mempool, noted that over the past 24 blocks, Coinbase consolidated 92,400 small outputs from Magic Eden at 7 satoshis per virtual byte (sats/vb), involving 308 transactions, ultimately paying a fee of 0.59 BTC to recover 1.75 BTC. Danny believes Coinbase is unaware of these occurrences, leading to inefficient consolidation practices and significant financial losses.

10. U.S. Bitcoin Spot ETFs See Nine Consecutive Days of Inflows link

On May 23, the US Bitcoin spot ETF saw a total net inflow of $108 million, marking its ninth consecutive day of net inflows.

As of May 22, the latest data shows the historical net outflows for GBTC amounted to $17.62 billion, with remaining holdings valued at $19.39 billion. The IBIT ETF from BlackRock had historical net inflows totaling $16.08 billion, holding assets valued at $19.71 billion. FBTC recorded historical net inflows of $8.65 billion, with remaining holdings valued at $11.18 billion.

Since the approval of Bitcoin spot ETFs, historical net inflows have reached $13.35 billion, with total holdings amounting to $57.85 billion, representing 4.30% of the total Bitcoin supply.

Fundraising

Decentralized social protocol Farcaster announced the completion of a $150 million funding round, led by Paradigm. link
ZK hardware acceleration company Cysic raised $12 million in pre-Series A financing. link
Plume Network announced the completion of a $10 million seed funding round. link
The Fantom Foundation announced a new $10 million strategic financing round. link
U.S. blockchain startup Alphaledger announced the completion of a $9.5 million Series A financing. link
Decentralized governance infrastructure Dora Factory announced the completion of a new $10 million strategic financing round. link
Mighty Jaxx completed an $11 million Series A+ financing round. link
Blockchain interoperability protocol Stripchain recently closed a $10 million funding round. link
The Ethereum re-staking platform KelpDAO announced the completion of a $9 million private token sale financing. link
ELFi Protocol announced a total of $5 million strategic financing in two rounds. link
The DePIN project Blockless raised $8 million in two early-stage financing rounds. link
Web3 productivity application Focus Tree announced the completion of a $2 million seed funding round. link
Web3 soccer game FantaGoal announced $3 million in funding. link
Binance Labs announced an investment in decentralized derivatives trading platform Aevo. link

Learn more, check out crypto-fundraising.info.

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