Experts warn that the industry’s belief in the positive impact of Ether ETFs may be misguided.
The U.S. Securities and Exchange Commission (SEC) has finally approved spot Ethereum (ETH) ETFs after months of deliberation. However, this approval is currently limited to the 19b-4 filings, and it may take several months for actual trading authorization as the issuers’ S-1 applications are still being reviewed.
While this move has been seen as a positive step for the industry, experts believe that spot Ether funds could have unintended consequences for the ecosystem.
One key difference between ETFs backed by Bitcoin (BTC) and Ethereum lies in their consensus mechanisms. Bitcoin uses a proof-of-work model, which incentivizes participants to hold and send BTC. On the other hand, Ethereum has a multi-billion dollar decentralized finance (defi) ecosystem and was designed for on-chain deployment.
Carlos Mercado, a data scientist at Flipside Crypto, argues that holding ETH idly in the funds is counterproductive. He compares it to hoarding gasoline, saying it’s not the best use of the asset. While staking could address this concern, it was removed from several spot Ethereum ETF applications, raising questions about U.S. crypto staking adoption.
Tom McClean, a quantitative developer at Vega Protocol, believes that removing staking features eases concerns about centralization but doesn’t fully address the problem. He points out that ETFs will likely only buy, hold, and sell Ether tokens, leaving large amounts of ETH unstaked and unproductive in the system.
However, McClean also sees a potential positive outcome from this approval. He believes it could push investors and issuers to seek regulatory clarity on staking. Justin d’Anethan, Head of Business Development (APAC) at Keyrock, shares a similar view and suggests that the approved filings endorse Ether as a non-security, relieving investors and Ethereum stakeholders of a regulatory burden.
While the approved filings may suggest a change in the SEC’s stance on ETH’s financial instrument status, it’s still unclear how the regulator truly views the asset.
In conclusion, the approval of spot Ethereum ETFs by the SEC has mixed implications for the ecosystem. While it provides some regulatory clarity, it also raises concerns about the proper utilization of ETH and the potential centralization of its holdings. Only time will tell how these ETFs will impact the Ethereum market and its stakeholders.
