With all of the excitement around the launch of bitcoin spot ETFs, including bitcoin reaching highs in excess of $50,000 that were last reached during 2021, investors and market analysts have correctly been focusing on the implications of these product launches. Benefits associated with these products launches include the legitimacy conveyed by the approval of the products, the continuous institutional buying and demand for bitcoin as a result, and the increasing acceptance that bitcoin will serve a role in asset allocation conversations going forward. For all of the benefits of a bitcoin spot ETF however, this overlooks an important trend in the broader cryptoasset conversation; bitcoin is not the crypto of choice for developers.
As TradFi institutions continue to push for the increased tokenization of assets, including developing spot ETF products for ether, this rapid pivot is indicative of underlying realities of the broader blockchain and crypto ecosystem.
Despite the increasing coverage and excitement around bitcoin, the fact remains that the EthereumETH blockchain and ether are far and away the more popular option for developers, entrepreneurs, and other innovators in the tokenized asset space. The burst in creativity related to tokenized applications has been built almost entirely on ether. Smart contracts, the bulk of NFTs, decentralized autonomous organizations (DAOs), governance tokens and associated products tend to run on ether versus bitcoin. BitcoinBTC might continue to attract fund flows and media coverage, but in terms of ecosystem development and growth the innovation continues to focus on ether.
Let’s take a look at a few things that crypto investors should keep in mind as the push for ether spot ETF products continue to accelerate.
Staking Lawsuits Might Be Resolved
Crypto investors and market watchers are no stranger to lawsuits and enforcement actions being levied against industry actors, and several of those legal actions have been connected to staking services. With nearly $85 billion of ETH currently staked, this means that any resolutions around the staking-as-a-service cases currently working through the court system are certainly going to influence the ETH conversation.
Specifically as institutional investors of all sizes continue to seek on-ramps for in-house capital and investor capital to gain exposure to cryptoassets, the reliability and understandability of staking returns will continue to grow in importance. With the Federal Reserve pushing off any substantive conversation around rate cuts until later in 2024, the yields available via staking continue to be attractive. As ETH plays a large role in the staking marketplace, this also means that the characteristics and market trends connected to ETH will also be revisited.
ETH Classification Will Be Revisited
A running question in the crypto marketplace that continues to serve as an obstacle to wider adoption is how these instruments are classified. Bitcoin, gives its globally decentralized and distributed nature has long been perceived as one cryptoasset that should not be classified as an equity instrument. Despite foot-dragging by the SEC, the approval of spot bitcoin ETFs seems to have locked in this non-classification, although it remains to be seen if this could change in the future. This is where the very success of ETH, including the role it plays in the staking market and its growth post-Merge, could prove to be a negative.
With the rise of staking services, and especially following the concentration of staked ETH that occurred post-Merge, questions are justifiably being asked as to whether or not ETH is similar to an equity security. The pooling of funds, in a common project, managed by a centralized actor (or protocol) to generate economic returns with no direct involvement of most participants can be interpreted as nearly equivalent to a security classification. One way or the other the uptick in interest and investment in both ETH and ETH products will drive this conversation to the front burner at the SEC and other regulatory agencies.
Whether or not a spot ETF receives approval in May 2024 as has been predicted, or some future date the facts remain that the TradFi market continues to show increasing interest and enthusiasm for the cryptoasset sector. Investors of all sizes should take note and remain up to date on how ETH is driving innovation and growth in the crypto space.
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