With Ethereum ETFs Approved, Why Is ETH Not Going Up?

Zinger Key Points
  • Market anticipation likely caused Ethereum's price stagnation, as the approval was already factored in by investors.
  • Investors await further clarity on the full approval process for Ethereum ETFs amid ongoing regulatory and political dynamics.

Ethereum ETH/USD enthusiasts were left scratching their heads this week after the long-awaited approval of a spot Ethereum ETF failed to ignite the anticipated price surge.

What Happened: While many expected a repeat of Bitcoin‘s BTC/USD rise following similar ETF approval in January, ETH prices have remained relatively flat.

The SEC’s approval of the 19b-4 forms is a crucial step in the regulatory process but does not fully clear the path for ETF trading.

The S-1 registration statements, which provide detailed information about the ETFs to the SEC, must still be approved for trading to commence.

This approval is often seen as a formality, but the current political climate has added uncertainty.

However, new information suggests the approval process might not be as straightforward as initially believed.

Gabriel Shapiro, co-founder of MetaLeX Labs, explains that only the 19b-4 forms were approved, not the S-1 registration statements.

This limited approval was made by the SEC’s Division of Trading and Markets under “delegated authority,” allowing any commissioner to challenge the decision within ten days.

Shapiro suggests this procedural move indicates an attempt to obscure the political nature of the vote.

Shapiro hints at a broader political strategy, suggesting the SEC’s actions are part of a “horse trade” to secure environmental, social, and governance (ESG) rules before a potential challenge by Donald Trump if he wins the 2024 election.

This complex backdrop contributes to the uncertainty surrounding the approval of the S-1 forms, which Shapiro believes are unlikely to be approved soon.

He describes the situation as “political progress” for crypto, similar to the Financial Innovation and Technology (FIT) Act.

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Also Read: EXCLUSIVE: All You Need To Know About The FIT21 ‘Crypto Bill’

Market Reactions

Eric Balchunas, Senior ETF Analyst at Bloomberg, offers a counterpoint, expressing confidence that the S-1 forms will eventually be approved and downplaying the likelihood of significant challenges.

He attributes the lack of a price spike to the fact that the ETF approval was already anticipated by the market following earlier news.

“S-1s will be approved, don't be silly… It prob didn't moon IMO bc approval was baked in already based on Monday's bombshell news,” Balchunas tweeted.

Scott Johnsson of Van Buren Capital questions the SEC’s strategy, arguing that using crypto regulations as leverage for ESG rules undermines the commission’s credibility and political strategy, especially if they fail to achieve their ESG objectives.

“This is tough to square…they don’t get ESG rules and also lose all credibility that they actually intend to govern reasonably in a Biden second term,” Johnsson stated.

Staking and Market Dynamics

Pranav Kanade, Investment Partner at VanEck‘s Digital Assets Alpha Fund, highlighted another crucial factor: the nature of ETH staking in the approved ETFs.

“The ETH ETFs approved on May 23rd do not currently include staking, and all of the ETH held in these ETFs will remain unstaked. However, even if this were to change (via new staked ETH ETFs), the risk of staking concentration would be largely mitigated by three factors,” Kanade explained.

He pointed out that regulatory and compliance requirements would likely prevent U.S. ETF issuers from staking with dominant players like Lido.

Additionally, emerging staking protocols are already reducing Lido’s market share, and Lido itself is diversifying its node operators, minimizing concentration risks.

Looking Forward

These developments highlight the intricate interplay between regulatory actions and political considerations affecting Ethereum’s market dynamics.

Investors remain cautious as they await further clarity on the full approval process.

For a deeper dive into the implications of these regulatory shifts and the future of digital assets, industry leaders and investors can join Benzinga’s Future of Digital Assets event on Nov. 19.

This event will provide valuable insights into the evolving regulatory landscape and investment strategies within the digital asset space.

Read Next: Bitcoin Spot ETFs Record $108M Inflows While Ethereum ETF Potential Remains Uncertain

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