Explosive Growth of Ethereum: Causes and Further Prospects for ETH ETF Adoption

On May 21, 2024, the price of Ethereum surpassed the critical $3700 mark. Within just 24 hours, the asset's price surged by nearly 24%. One reason was a post on X by Bloomberg analysts Eric Balchunas and James Seyffart. They raised the likelihood of approval for spot Ethereum-ETF applications in May 2024 from 25% to 75%. Experts that the U.S. Securities and Exchange Commission (SEC) has dramatically changed its stance on Ethereum due to "political pressure".??

Why did the market react now?

Previously, eight issuers had submitted their applications to launch spot Ethereum-ETFs in the U.S. This week marks the deadline for two of them: VanEck on May 23 and Ark Invest/21Shares on May 24. In fact, an application for a launch consists of two forms: S-1 from the issuing company and 19B-4 from the exchange where the new class of assets will be traded.??

Compared to the Bitcoin-ETF launched in January 2024, the approval process for spot Ethereum-ETFs has been less active and involved fewer official actions from the SEC.??

Meanwhile, it was the information about the direction of official notifications to the NASDAQ, CBOE, and NYSE exchanges that allowed Bloomberg analysts to raise the likelihood of approval this month to 75%. Previously, the main obstacles to launching Ethereum-ETF were the disputed status of Ethereum as a security by the SEC, as well as the staking feature that allowed issuers to earn additional income of about 4% per year from assets under management (AUM). Judging by the changes in applications from Fidelity and Ark Invest, both issuers decided to abandon staking. The regulator's position was influenced by the new FIT21/HR 476 bill planned for adoption in the U.S. House of Representatives.??

What is the essence of the bill?

To understand the significance of this legislative act, it is worth noting that until recently, the primary method of regulating the crypto industry in the U.S. was "enforcement lawsuits" from the SEC. In the absence of a regulatory framework, this method implied legal disputes as the main way to legalize the activities of a particular protocol in the U.S.??

The current bill proposes:

- a more detailed definition of decentralized protocols and their regulatory bodies the distribution of powers between the SEC and the Commodity Futures Trading Commission (CFTC).??

- the lock-up period for tokens (long-term investments instead of speculation).??

- the operation procedures for crypto exchanges, and much more.??

In particular, protocols where no single participant holds more than 20% are proposed to be considered decentralized. They will be regulated as commodities by the CFTC. If this parameter is exceeded, the asset will be considered a security and fall under SEC regulation.???

The bill has received bipartisan support from Republicans and Democrats, which is extremely rare in the current U.S. political system. Additionally, it is the result of cooperation between two committees: The House Committee on Financial Services, which oversees the SEC, and The House Committee on Agriculture, which oversees the CFTC.??

Along with support from participants in the crypto industry, the bill has a very high chance of becoming full-fledged law. Presumably, this fact has been one of the auxiliary factors for the adoption of Ethereum.??