One of the hottest topics of the summer of 2024 is the launch of spot Ethereum-ETF. Some market participants believe that the appearance of the tool will make ETH skyrocket. Others are sure that amid the start of trading, the cryptocurrency rate will puke down.
The itez editorial team gathered in one review the arguments of optimists and pessimists in order to find out how ETH might really react to the launch of spot Ethereum-ETF.
What is a spot Ethereum-ETF and how will it work
A spot ETF is an exchange-traded fund that tracks the current price of an underlying asset. In this case, the underlying asset is the second-largest cryptocurrency in terms of market capitalisation, Ethereum. Unlike a futures ETF, which tracks the future price of an asset, a spot ETF is tied to the current exchange rate of the cryptocurrency. Spot ETFs mean that the tool's creator bought the asset itself, i.e., ETH. Futures ETFs operate with contracts for the future.
How was the spot Ethereum-ETF approved in the USA
On May 23, 2024, the US Securities and Exchange Commission (SEC) approved applications for the listing of spot Ethereum-ETFs on several exchanges, including NYSE Arca, Nasdaq, and CBOE BZX. However, the ETFs have not yet appeared on them.
On June 25, 2024, VanEck filed an updated application on Form 8-A. The changes indicate the work of the organisation's representatives to "tweak" the application to meet regulatory requirements to accelerate the launch of trading.
Market participants are awaiting the launch of spot Ethereum-ETF trading on July 8, 2024. By this date, issuers must submit updated applications to the SEC on Form S-1.
Unfortunately for investors, SEC Chairman Gary Gensler believes that there is no need to rush the launch of the tool. Therefore, the proposed launch date for spot Ethereum-ETFs may be postponed.
What does the launch of spot Ethereum-ETF mean for the market
The launch of spot Ethereum-ETFs could open doors for new cryptocurrency ETFs. This tool will promote the growth of interest in digital assets among institutional investors.
On June 19, 2024, Consensys, a software developer for Ethereum, announced that the SEC had dropped its claims against Ethereum. Previously, the authority tried to classify ETH as an illegally issued security due to its transition to the Proof-of-Stake (PoS) algorithm.
The approval of spot Ethereum-ETFs indicates the lack of evidence by the SEC that the coin violates securities laws. The project's victory over the SEC could lead to the Commission's capitulation in similar cases, for example, against Ripple.
How will ETH react to the launch of a spot ETF
K33 calculated that spot ETFs on Ethereum could attract from $38 billion to $45 billion in the first five months and significantly raise the ETH rate. However, we should not forget about the experience with spot Bitcoin-ETFs. In anticipation of the approval of the instrument, BTC rate actively grew, but after its launch, the coin went into decline. Bitcoin was able to return to the levels of the launch of spot ETFs trading only after a month.
Vertical line - day of approval of spot bitcoin-ETF trading in the USA. The horizontal line shows how many days BTC took to return to previous levels. Chart: TradingView
There were several reasons for the Bitcoin sell-off. The first is that the euphoria of anticipation subsided after the event. The second is the outflow of assets from the Grayscale Bitcoin Fund (GBTC). The company created its spot BTC from the already existing trust. Against the backdrop of trust conversion, investors began to lock in profits by selling their shares. Their actions put pressure on the BTC rate.
Grayscale also has an Ethereum trust that the company wants to transform into a spot Ethereum-ETF. If the scheme works, the coin investors may face a similar sell-off. However, in the long run, the launch of spot Ethereum-ETFs could lead to a significant rise in the cryptocurrency rate.
Is it worth investing in Ethereum now
The launch of spot Ethereum-ETF is an important event for the cryptocurrency market. The instrument could attract institutional investors’ attention to the coin and support the growth of ETH rate. However, a sell-off is not ruled out against the backdrop of the start of fund trading.
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
