Ethereum
Last Minute Approval of Ethereum ETFs Reveals Massive Shift
Yay.
The Securities and Exchange Commission approved ethereum spot exchange traded funds on May 23, so yes. Yay. But the manner in which this approval came about is astonishing, portending big implications for crypto as the November election approaches.
Quick background: Ethereum was invented in 2015 and is known as “programmable currency” or “smart contracts,” meaning you can control the timing and terms of your transmissions. You can’t do that with Bitcoin, and this feature explains why Ethereum is now the second largest digital asset by market capitalization.
Nowadays, Bitcoin is primarily valued for its function as a store of value, while Ethereum is primarily valued for its commercial applications. Indeed, many of the world’s biggest brands, including Nike, Google, PayPal, UBS, BlackRock, Tiffany’s, Breitling and Burberry, are building projects on the Ethereum blockchain. It is also the leading platform for stablecoins and decentralized finance, each worth over $150 billion.
This enthusiasm underpins the excitement over the new Ethereum spot ETFs. In fact, Standard Chartered predicts that up to $45 billion will be invested in these ETFs in the first 12 months.
But there’s a catch: You can’t buy them yet, because the SEC botched the process. The agency had a legal deadline to approve or reject the first of the Ethereum applications, that of Van Eck, by May 23.
Everyone monitoring the situation was pretty sure that the SEC was going to reject all applications – the best evidence being that there was virtually no communication between the SEC and the eight ETF providers that had filed applications. (Typically, when an application is under review, there is substantial engagement between SEC staff and the fund company.)
Then, just 72 hours before the May 23 deadline, the SEC engaged in intense engagement with all ETF sponsors, not just Van Eck, including requests for urgent changes to their applications. This sudden activity came as a real surprise and indicated that approval was imminent. Overnight, Bloomberg went from 25% approval probability to 75%.
Indeed, the approval came Thursday evening before the start of the Memorial Day weekend, with the lack of notice leaving the crypto and financial services communities unprepared. And, in the end, the SEC’s last-minute scramble left the job unfinished; Although all Forms 19b-4 have been completed and approved, none of the applicants’ Form S-1s have been.
Therefore, ETFs have not yet entered the market. People I spoke to couldn’t remember the last time an SEC-approved ETF couldn’t begin trading immediately. Sponsors of these ETFs say it could be months before trading begins.
Why did the SEC wait so long to work on Ethereum ETFs?
The answer speaks volumes about a massive political shift on Capitol Hill – with massive implications for the future of crypto.
If Republicans win the White House or take control of both houses of Congress, the crypto industry will see explosive growth in the United States. But if President Joe Biden remains in the White House or Democrats control Congress, the crypto industry may well abandon the United States in favor of more welcoming countries, including Japan, South Korea, France and the United Kingdom.
The Democratic Party’s disdain for crypto is well known. SEC Chairman Gary Gensler’s conduct regarding crypto has been criticized not only by many members of Congress, but by virtually every former SEC commissioner.
Gensler’s opposition mirrors that of most Democrats, including Sen. Elizabeth Warren, who has sponsored several bills to restrict or ban digital assets, and Biden, who not only nominated Gensler to his post SEC, but more recently asked Congress to approve a 30% excise tax on Bitcoin mining. If passed, the tax would eliminate mining in the United States, displacing innovation overseas and costing tens of thousands of good-paying, green jobs in 41 states.
The crypto community is tired of the treatment in Washington. So the industry formed several political action committees and funded them with nearly $250 million, making them the biggest financial influencers in the 2024 elections. Their main targets: Democrats who oppose cryptography legislation and regulations. One of them was Rep. Katie Porter, and she lost her Senate primary.
In her concession speech, she said her loss was “rigged” by “billionaires spending millions” to change the outcome. (Porter later said she regretted her comment.)
The crypto community and investment management industry are unhappy that no crypto laws or regulations have been approved. It took an appeals court to force Gensler to approve Bitcoin ETFs, and their debut proved massive investor interest in the asset class: They became the fastest-growing ETF category in the world. history, accumulating $60 billion in assets in less than five years. month — including more than $5 billion from institutional investors so far.
The crypto community is delighted. The ETF industry is delighted. And the investment advisory industry also smiles by participating in the assets under management and the resulting fees. But one group is very unhappy: the banks.
Thanks to Gensler and Congress, banks are prohibited from providing crypto custody services.
Meanwhile, Coinbase has $350 billion in assets. So it’s no surprise that the American Bankers Association is working to change that. Its website states: “ABA works to help banks securely meet customer demand for digital assets.” That’s code for: We’re lobbying Congress, so we can play too.
Given all of this, it’s not a stretch to imagine that Wall Street firms and American bankers expressed their views to Senator Chuck Schumer, the Democratic majority leader who also represents New York. It’s also not a stretch to imagine that Schumer spoke with Biden.
My proof? Not only did Gensler engage in a sudden and unexpected 180-degree turn to approve Ethereum ETFs, but 71 House Democrats just voted in favor of the Financial Innovation and Technology for the 21st Century Act. Never before have so many Democrats supported major crypto legislation.
The prospects for this legislation are uncertain; Given Congress’s schedule, the Senate is unlikely to act this year, and there are rumors that Biden would veto the bill anyway. Indeed, some report that his veto promise allowed Democrats to support the bill, thereby protecting them from crypto PACs while knowing that the bill will not actually become law.
Meanwhile, presumptive Republican presidential nominee Donald Trump has advocated strong support for crypto, going so far as to accept campaign contributions in Bitcoin, Ethereum, and several other digital assets. At a recent rally, he said: “I will also stop Joe Biden’s crusade to crush crypto. I will ensure that the future of crypto and the future of bitcoin is made in the United States and not abroad. I will support the right to self-custody for the country’s 50 million crypto holders. I will keep Elizabeth Warren and her minions away from your bitcoin.
Bottom line: Crypto has become a campaign issue, and single-issue, crypto-focused voters pose a threat to Democrats seeking election or re-election.
Ric Edelman is an author and founder of RIA Edelman Financial Engines (formerly Edelman Financial Services). He now heads the Financial Professionals Digital Assets Council.