Ether Price Steady After ETF Approval Despite Expectations

What’s Next for Ether After ETF Approval?

by Faruk Imamovic
Ether Price Steady After ETF Approval Despite Expectations
© Getty Images/Jack Taylor

In a landmark decision on May 23, the U.S. Securities and Exchange Commission (SEC) approved eight spot Ether exchange-traded funds (ETFs) for listing on their respective exchanges. This decision was expected to send ripples through the cryptocurrency market, especially for Ether (ETH), which had shown significant movement in the days leading up to the announcement. Despite this significant approval, the anticipated skyrocketing of Ether’s price did not materialize, leaving many investors puzzled.

Ether, trading at $3,806 at the time of the news, had experienced a 29% surge in the previous week, driven by speculation about the SEC’s potential approval. However, the actual approval led to only a modest recovery in price after a brief drop, which left many market participants and analysts searching for explanations.

Anticipation vs. Reality: Understanding the Market Response

One of the primary reasons cited for the lack of a substantial price increase following the ETF approval is the market’s pre-emptive behavior. Crypto commentator Zach Rynes suggested that the market had already priced in the approval long before it was officially announced. “Everyone who wanted to buy the approval already did,” Rynes noted, implying that the surge in the days leading up to the announcement had exhausted much of the immediate buying interest.

Moreover, while the SEC has approved these ETFs, they have not yet been cleared to launch. For the ETFs to start trading, an approved S-1 filing, a detailed document outlining financials and risk profiles, is required. VanEck has already submitted its amended S-1 filing, but analysts predict that it could take weeks or even months for the SEC to grant final approval.

Ether Price Steady After ETF Approval Despite Expectations
Ether Price Steady After ETF Approval Despite Expectations© Getty Images/Jack Taylor

Awaiting the Inflow: The Real Price Movement May Be Yet to Come

Many experts, including Rynes, believe that the real impact on Ether’s price will be felt once the ETFs begin trading and new capital starts flowing in. “ETFs haven’t actually launched yet, so net new capital inflow is still to come,” Rynes explained. This sentiment was echoed by the crypto research firm Second Mountain, which predicted a massive influx of capital in the first week of ETF trading, potentially reaching billions of dollars.

However, historical precedent provides a note of caution. When spot Bitcoin ETFs were approved earlier in January, Bitcoin’s price initially dropped by 15%. It took a full month for the price to recover and spike by 30%. This pattern suggests that immediate price surges are not guaranteed and that the market may need time to adjust and respond to the new trading dynamics introduced by the ETFs.

Concerns and Potential Outflows

Adding to the uncertainty are concerns about the potential outflows from existing crypto investment vehicles. Grayscale, a major player in the crypto investment space, announced plans to convert its Grayscale Ethereum Trust (ETHE) into a spot Ether ETF. Similar moves in the past, such as the conversion of the Grayscale Bitcoin Trust (GBTC) following the approval of spot Bitcoin ETFs, led to significant outflows. Pseudonymous crypto trader Rho Rider highlighted this risk, noting that ETHE, which has held substantial amounts of ETH for years, might see similar outflows, potentially impacting Ether’s price negatively.

Since the start of spot Bitcoin ETF trading, GBTC has seen a loss of $17.6 billion in assets, indicating a substantial reallocation of funds that could similarly affect ETHE and, consequently, the broader Ether market.

Optimism Amidst Caution: The Long-Term View

Despite the immediate market reaction and potential short-term volatility, there is a prevailing sense of optimism among some Ethereum proponents. Independent Ethereum educator Sassal described Ether as “stupidly undervalued,” arguing that the market has only had a few days to fully digest the ETF approval news. This perspective suggests that the true valuation and price movement might only become apparent over a longer period as the ETFs begin trading and new capital enters the market.

Additionally, the broader cryptocurrency market has shown resilience and growth in response to these developments. Bitcoin, Solana, and Dogecoin all experienced notable price increases in the wake of the SEC’s decision, indicating a general positive sentiment and rising interest in the crypto market as a whole.

SEC’s Implicit Recognition of Ether’s Commodity Status

The approval of spot Ether ETFs by the SEC carries significant implications beyond just price movements. Industry analysts and legal experts have interpreted this decision as an implicit recognition by the SEC that Ether is not a security. Bloomberg ETF analyst James Seyffart stated that by approving these commodity-based trust shares, the SEC is effectively signaling that it does not consider Ether to be a security.

This interpretation has broader ramifications for other cryptocurrencies as well. Digital asset lawyer Justin Browder suggested that if Ether ETFs receive S-1 approval, it would settle the long-standing debate over whether Ether is a security. Adam Cochran, a partner at Cinneamhain Ventures, extended this argument to other tokens, suggesting that many projects could now be viewed as commodities rather than securities.

However, this does not mean that the SEC will cease its regulatory activities altogether. The commission is still expected to scrutinize activities related to staking and may pursue actions against individual actors involved in staking services. This ongoing regulatory oversight means that while the approval of Ether ETFs is a positive development, it does not eliminate all regulatory risks for the cryptocurrency market.