Key Points
The process of the Securities and Exchange Commission (SEC) approving spot Ethereum (ETH) exchange-traded funds (ETFs) is fraught with controversies and uncertainties.
There is no consensus within the crypto industry on whether the news implies an approval, as the SEC has not yet cleared the products for trading.
However, the most significant issue is the compromise on the inclusion of staking in the filings.
Staking – A Major Contention Point
Staking has been a contentious issue for spot ETH ETFs, with differing interpretations of the Howey Test in relation to staking causing disagreements.
The SEC believes that staking meets all four prerequisites to be considered an investment contract, thus falling under their regulatory jurisdiction.
However, others argue that staking is more akin to a technical service, as it involves locking up crypto tokens to secure the network and ensure its smooth operation.
The rewards, they argue, do not come from the work of validators or developers, but are coded into the smart contract itself.
This debate has been ongoing for some time, and the SEC’s apparent capitulation is viewed with suspicion.
It seems the agency may have reluctantly conceded defeat on the ETFs, knowing it still has other tools at its disposal.
Therefore, it is premature for Ethereum proponents to declare a full victory.
For the ETFs to trade, the approval of the S-1 filings is needed.
While BlackRock has reportedly updated its S-1 filing, which could be a positive sign, a swift decision is not guaranteed.
The approval could come as early as next month, or it could take several months, due to the political uncertainty in the U.S. this year.
Last week’s rushed 19b-4 approval is believed to be a politically motivated move, given the recent passage of the crypto-focused FIT21 bill through the House with strong Democratic support.
However, due to the uncertainty surrounding the future U.S. government following this year’s presidential election, the future regulatory attitude towards crypto remains uncertain.
Once the ETFs start trading, we will likely see an increase in the price of ETH, possibly triggering the much-anticipated “altseason”.
However, the assumption that this rising tide will lift all boats may be misguided.
The focus will likely remain on the Ethereum ecosystem, rather than other chains, and those expecting a swift approval for spot ETFs tracking the prices of other cryptos like Solana, XRP, etc., should temper their expectations.
Even with a spot ETH ETF, most altcoins will remain highly speculative investments driven by sentiment and retail interest.
Institutional interest in Ethereum is not guaranteed, unlike Bitcoin.
Given the ongoing uncertainty around staking, institutional investors are likely to adopt a more cautious approach.
With all this regulatory and political uncertainty, investors should remain level-headed as we may be in for a long period of regulatory scrutiny, political posturing, and a lack of clarity.
Markets typically react to such situations with volatility, so a sell-off in ETH and other altcoins is just as likely in the near future as a surge.
The outlook will heavily depend on the election result and how the SEC’s attitude towards staking evolves.
Being prepared for different outcomes is crucial for a successful investment or trading strategy, given the high risk of ending up on the wrong side of the trade when such binary outcomes are involved.
It is evident that the SEC is not yet done with its attempts to classify parts of the crypto ecosystem as a security, and staking could be a compromise too far for the regulator.
