Ethereum ETFs authorised on Wall Street: what consequences for ether?

Ethereum ETFs authorised on Wall Street: what consequences for ether?

Ethereum ETFs will soon be making their debut on Wall Street. Here's everything you need to know about the direct consequences.

It's been an open secret since Monday, but the US financial regulator has finally approved the first applications to introduce ETFs based on the cryptocurrency ether (ETH). These were filed by several leading asset managers, including BlackRock, Fidelity and VanEck.

In all, eight entities are involved, and most will be launching their products as early as a few weeks from now. The delay is explained by the fact that the various issuers still need to obtain a final certificate (S-1) in order to be authorized to list the products.

Why it matters

All US investors will be able to invest in ether via their securities account with their regular broker without having to worry about the creditworthiness of the platform on which they buy the cryptos, or how secure they are. For ether, this is a huge boost to its institutionalisation, four months after the first Bitcoin ETFs arrived in the US. 

Such approval could also reduce the perception of risk associated with investing in the asset, encouraging more investment.

European investors already have such products, known as ETNs or ETPs, issued by managers VanEck, CoinShares and 21Shares. The arrival of equivalents in the US is much more significant for the sector because of the weight of the US capital market.

> Read our report on institutional investors' strategies in cryptos

What impact on price?

This is the big unknown, even if investors have already boosted the ETH price by 18% since Monday. Since January 1, the ETH price has appreciated by 78%. Its all-time record is not far off, at around $4900 (November 2021).

It is nevertheless premature to imagine a performance similar to that of bitcoin after the arrival of its ETFs in January (50% rise). Indeed, the Bitcoin ETF was eagerly awaited by most of the major players in global finance, but this is not really the case for Ethereum.

For many people, the proposition of this blockchain is still largely misunderstood (the famous "global computer"), whereas that of Bitcoin has the merit of being simple and understandable by many (a rare digital asset that is exchanged peer-to-peer).

Finally, Ethereum ETFs arrive almost too early for the various issuers to be able to broadcast a marketing campaign worthy of the name, but this remains extremely positive for the sector in the medium term.

Financial inflows into these new products will have to be carefully monitored, perhaps anticipating relatively average amounts at the start, which could disappoint investors and therefore put downward pressure on the price.

Another point to watch out for: Grayscale was also allowed to convert its Ethereum trust into an ETF, and this had resulted in massive market sales when its Bitcoin trust was converted into an ETF. The Ethereum trust contains around $10 billion worth of ethers.

The little regulatory detail we love

After studying the ETF filings, we noticed that all the issuers presented the cryptocurrency ether as a commodity, not a security.

The fact that the regulator approves this definition is very encouraging news, as this asset could avoid the reclassification as a financial security that has been hanging over its head for the past few weeks and the SEC's dispatch of a "wells notice", a device that foreshadowed the imminence of coercive measures.

We should remain cautious on this subject as the ETF cases are being conducted under separate procedures. Nevertheless, it is an important element in presenting Ethereum as a protocol that is sufficiently decentralised (like Bitcoin) to escape the traditional regulation of financial securities.

Will we soon see ETFs on other cryptos?

It is still too early to say, but theoretically there should be nothing to stop Solana or Dogecoin one day joining the ranks of cryptos available as ETFs. For the largest capitalisations, there is hope.

The challenge for their issuers will be to demonstrate that they are not subject to price manipulation, a crucial element in the eyes of the SEC. And that's where a lot of projects are likely to get stuck...

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