Ethereum ETF & US Regulation

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Let’s get to it - this week, we're diving into some major regulatory updates that could signal a turnaround for the sluggish crypto markets.

Markets

ETH's Explosive Rise

After a few months of painful downtrends, ETH exploded for a $560 gain on Monday, marking its second-largest daily USD increase ever. This spike added around 60-70 billion to ETH's market cap, a move comparable to Solana's total market cap. The reasons behind this surge are tied to exciting developments on the ETF front, which we'll explore later.

Bitcoin's Steady Range

Bitcoin has been ranging around its all-time highs. Despite the noise, traders believe it looks healthy from a technical analysis perspective, supported by optimistic regulatory winds and potential interest rate cuts.

We continue to view Bitcoin as a "liquidity sponge", absorbing global liquidity increases as global monetary policies loosen. If the theory holds, Bitcoin stands to benefit from Federal Reserve interest rate cuts in the coming months.

Altcoins Yet to Move

The total market cap of all cryptocurrencies, excluding Bitcoin and ETH (Total 3), remains steady. While there was a bump from ETF news, the altcoin market hasn't made its next big move up yet. We're closely watching the chart for signs of a potential alt season, where altcoins could reclaim previous cycle highs (~67% increase) in a repeat of 2021’s mania.

Ethereum ETF Approval

Regulatory Shakeup

The big news this week is the approval of the Ethereum ETF by the Securities and Exchange Commission (SEC) - a completely unexpected move.

The story begins with a tweet from Bloomberg ETF specialist Eric Balchunas, who increased the odds of approval from 25% to 75% on Monday. This development led to the significant price rally for ETH early and renewed optimism from crypto market participants.

What happened is that the SEC requested that the NYSE and CBOE Global Markets update their 19b-4 forms, filings that propose rule changes to allow the ETH ETFs to trade. The 19b-4 filings were ultimately approved on Thursday afternoon, paving the way for ETH ETFs.

Since S-1 filings still need to be approved for each potential issuer, the ETF launch process is expected to move on the SEC’s timeline. Analysts believe that the process could take a few months, placing the launch in late summer.

Market Impact: Will there be demand?

Now that the ETFs are approved, the debate is about whether there will be demand. Doubters say that ETH is too complicated.

Unlike Bitcoin, ETH is used both as money and as a capital asset, with staking providing cash flows. It’s difficult to compare it to something in traditional finance, hence there will be no demand.

ETH bulls view this as short-sighted and ignorant of TradFi’s sophistication. They also point out that ETF issuers like Blackrock and Fidelity are incentivized to educate investors.

These firms charge management fees on their products, so the more ETFs they sell, the more they make. Bottom line: they need investors to understand ETH.

Imho, the demand will be there.

Takeaways

• The approval reflects an abrupt shift in the SEC's stance, likely influenced by broader political dynamics. This suggests that we could be in a “goldilocks zone” for US crypto regulation, seeing favorable treatment from both democrats and republicans until the election this fall

• The ETF is a huge demand catalyst for ETH. With asset manager behemoths behind it, ETH finally has some narrative tailwinds to fuel market outperformance.

• Bitcoin nearly doubled in price and broke all-time highs in the months following the launch of BTC ETFs. At ~1/3 the market cap of BTC, ETH only needs ~1/3 of BTC’s dollar demand to see a similar move.

FIT 21 Bill

Legislative Milestone

In another major development, the House of Representatives passed the FIT 21 (Financial Innovation and Technology for the 21st Century) Act, aiming to establish a clear regulatory framework for digital assets in the U.S.

Key Points

• Jurisdiction Clarification: the bill delineates the jurisdiction between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

  • It creates a "digital commodity" term for digital assets that do not meet the bill's definition of a security, placing those assets under the CFTC's purview.

• Protection of Self-Custody: ensures that Americans can own and self-custody digital assets, enshrining them as private property.

• Progressive Decentralization: the bill creates a process for digital assets to transition from securities to commodities. This provides American innovators with clear guidelines for launching crypto projects.

• Bipartisan Support: the bill passed with significant bipartisan support, indicating a positive shift in America's approach to crypto regulation. 71 democrats supporting the bill vastly exceed expectations and is another sign that we’re in a “goldilocks zone” for US crypto regulation.

Next Steps

The bill now heads to the Senate, where it is expected to pass with some revisions. The White House has indicated the intention to not veto, paving the potential path for the bill to become law. This legislative progress marks a pivotal moment in U.S. crypto history and sets a framework for future innovation in the country.

Final Thoughts

This week has been monumental for crypto, with significant regulatory advancements and market developments. Market sentiment has flipped on a dime, and optimism is once again plentiful. Throughout the coming months, we’ll see the ETH ETF launch, a presidential election, and interest rate cuts. We’re bullish here at Internet Capital, but anything could happen. Regardless, it’ll surely be fun to watch.

Thanks for reading!

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