Ethereum Spot ETF is about to log in to the US market: Layout or Wait and See?

Since multiple asset management institutions submitted Ethereum ETF application documents to the regulatory authorities in June 2024, the market has been highly concerned about whether it can be successfully issued and when it will be listed for trading. Various predictions have emerged, and ETH's market value has frequently fluctuated with related news. Why does the Ethereum ETF so significantly affect market sentiment? Should we position ourselves in advance, or maintain a wait-and-see attitude?

Digital assets are gradually integrating into mainstream financial markets

This may be one of the most critical market significances of issuing cryptocurrency ETFs.

"This is the birth of a whole new class of assets." The Chief Investment Officer of an asset management company stated during a media interview. He believes that crypto asset ETFs represent an evolving story, and the successful issuance and good trading conditions of the Bitcoin ETF in January this year provided a positive signal for future development.

Data shows that the funds flowing into the Bitcoin ETF in the United States have ranked among the top this year in the US ETF leaderboard.

Regarding the issuance of the Ethereum ETF in the US market, industry insiders generally expect its capital-raising ability may not be as strong as that of the Bitcoin ETF, but it is still expected to attract billions of dollars in funding in the initial years, which would be a strong start for any ETF. Analysts have stated that if the Ethereum ETF achieves profits of 5 billion to 15 billion dollars within the first two years of its launch, it would be a huge success.

Currently, aside from Bitcoin and Ethereum, there are also reports in the market about the upcoming launch of a Solana Spot ETF. At the beginning of July, the exchange submitted relevant documents to the regulatory authorities, confirming that two asset management firms plan to issue a Solana Spot ETF. It is expected that the regulatory authorities will make a decision within 240 days.

Regulatory Challenges Facing Ethereum ETF Issuance

Compared to the smooth issuance of the Bitcoin ETF, the prospects for the Ethereum ETF in the U.S. market remain unclear, mainly due to regulatory disputes.

In the U.S. financial regulatory environment, whether ETH is a common asset or an unregistered security is still controversial. The root of this controversy lies in the struggle for regulatory authority - if ETH is regarded as a "digital commodity," it will be subject to commodity futures regulation; if its on-chain staking profit model is deemed similar to a traditional financial "investment contract," it may be considered a security and subject to securities regulation.

If ETH is classified as a security, the issuer must register with regulatory authorities in order to issue and trade it. Otherwise, they may face regulatory penalties for "issuing unregistered securities." In contrast, Bitcoin, due to the absence of on-chain staking and a clearer asset positioning, has been able to successfully issue an ETF.

It is worth noting that as of now, U.S. regulatory agencies have not provided a clear official opinion on the classification of ETH and the issuance of Ethereum ETFs.

Potential Impact of Ethereum ETF on the Ethereum Ecosystem

To avoid compliance risks, the institutions planning to issue the first batch of Ethereum ETFs have stated that they will not participate in on-chain staking with the ETH held by the ETF.

Ethereum staking began with the merge event in September 2022, which is significant for maintaining network security and the growth of ETH's market value. Currently, less than 30% of the total ETH supply is participating in staking, with about 10% locked in smart contracts, which may reduce the amount of new ETH that ETFs can hold, driving up ETH prices.

Some analyses suggest that due to the tight supply of ETH and its liquidity being weaker than BTC, the funds flowing into Ethereum ETFs may have a greater impact on the price of ETH. This is also one of the important reasons why many people are looking forward to the quick issuance of the US Ethereum ETF.

However, the potential negative impacts of ETF issuance cannot be ignored. Will a large amount of ETH held by ETFs and not participating in staking affect network security? Will the disparity between staking rewards and ETF returns cause users to abandon staking participation? Will institutions holding a large amount of ETH that does not participate in staking interfere with ETH pricing? These are all issues worth paying attention to.

Development of Ethereum ETFs in Other Markets

Except for the United States, places such as the United Kingdom, Hong Kong, and Australia have begun issuing Bitcoin ETFs. Digital assets are accelerating their integration into the global mainstream financial market.

Hong Kong launched its first batch of Bitcoin and Ethereum ETFs at the end of April this year, and opened for physical subscriptions. Compared to the US market, Hong Kong has a clearer regulatory framework for digital assets, resulting in lower compliance risks for issuers.

In addition, there are reports that Hong Kong regulators are considering allowing Ethereum ETFs to participate in staking, with discussions still ongoing. If this move is implemented, it will provide new possibilities for the development of Ethereum ETFs.