Regulation
Top 5 Reasons Why SEC Nods to Spot Ethereum ETF
The iconic approval of eight Spot Ethereum ETFs by the United States Securities and Exchange Commission (SEC) marks a significant milestone in the evolution of crypto investment products. The decision, driven by various factors, reflects a nuanced approach to regulation and market dynamics. Here are the top five reasons behind the SEC’s nod to the Spot Ethereum ETF.
1. Correlation between Ethereum Spot Market and Futures Market
A key factor in the SEC’s decision is the high correlation between the Ethereum spot market and CME Ethereum futures contracts. Data from the SEC analysis confirms that the CME ether futures market has historically shown a strong correlation with certain spot markets. Ethereum trading platforms over the past 2.5 years.
The correlation values are impressive: 96.2% over an hourly interval, 85.7% over a five-minute interval, and 67.1% over a one-minute interval. Three-month rolling correlations further validate these results. It varies from 86.4% to 98.4% over an hourly interval, from 75.8% to 90.2% over a five-minute interval and from 58.6% to 75.9% over a one-hour interval. minute.
Such robust correlations give the SEC confidence that the CME ether futures market and spot markets are closely aligned. This reduces the risk of fraud and manipulation through comprehensive monitoring and sharing agreements.
2. Political pressure due to the upcoming US presidential elections
The upcoming 2024 US presidential elections have introduced a political dimension to the SEC’s decision-making process. Pro-crypto candidates like Robert F. Kennedy Jr. and Donald Trump have raised the political stakes around cryptocurrency regulation. Additionally, this political landscape has prompted the Biden administration to adjust its stance on cryptocurrency.
Historically, the Biden administration has been tough on the crypto market. However, given that young voters are crucial for Democrats, showing support for innovation and crypto could be strategically beneficial. The move is seen as a move to appeal to a broader voting base by presenting a progressive stance on emerging technologies.
Read also: ETH Price Struggles to Rise Even After Ethereum ETF Approved, Sell News Soon?
3. Pressure from American lawmakers
Bipartisan pressure from US lawmakers significantly influenced the SEC’s decision. On May 23, a group of House lawmakers, including Majority Whip Tom Emmer and Democrat Josh Gottheimer, sent a letter to SEC Chairman Gary Gensler. They urged the SEC to approve spot Ether ETFs and other digital asset products.
Furthermore, they highlighted the need for regulated, transparent and secure means of investing in cryptocurrencies. Lawmakers stressed that approving these ETFs would provide investors with regulated options while maintaining rigorous market oversight and enforcement of securities laws.
4. Removal of Ethereum ETF Spot Application Staking Clause
The removal of the staking clause Ethereum Spot ETF applications constituted a crucial regulatory adjustment. On May 21, Fidelity updated its S-1 filing with the SEC, clarifying that the underlying Ether (ETH) tokens would not be staked. This addressed concerns about the security and regulatory implications of Fidelity’s activities. staking.
Additionally, following Fidelity’s lead, other major players like Grayscale and BlackRock have also removed staking clauses from their apps. Earlier, Ark 21Shares also launched a similar move. Therefore, the SEC could have exploited ETH’s momentum and banked on ETH to grant approval.
5. Adoption of the FIT21 bill
On May 22, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21). The bill, passed by a vote of 279 to 136, includes critical updates favorable to the crypto industry:
- CFTC as the main regulator: The Commodity Futures Trading Commission (CFTC) is designated as the primary regulator of digital assets. This assigns clear roles to the CFTC and the SEC.
- Clear regulatory distinctions: The bill specifies that the CFTC will regulate functional and decentralized crypto assets, while the SEC will supervise those classified as securities but not decentralized.
- Consumer protection: The bill establishes consumer protection measures, limiting the SEC’s authority over crypto exchanges and reducing regulatory uncertainty.
The passage of the FIT21 bill signals a more structured and balanced regulatory approach. Additionally, this development could have had a positive impact on the SEC’s decision regarding the Spot Ethereum ETF.
Read also: Just In: VanEck Rolls Out Ethereum ETF Publicity Minute After SEC Approval