Last week’s SEC approval for listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares was big news. The next shoe to drop could be the SEC’s approval of a bunch of ether spot ETPs. Gary Gensler’s statement said “Importantly, today’s Commission action is cabined to ETPs holding one non-security commodity, bitcoin. It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.” Which, of course clarified, in lawyerly terms, what the limitations of the approval were. No ether spot ETPs were authorized in this “cabined” action. We have been down this path before. Nine ether futures ETFs were granted approvals back in September 2023. Legal action against the SEC forced their hand into granting spot bitcoin ETF approval. Bitcoin futures ETFs were already granted approval, two years ago. The same could happen for a spot ether ETF. CNBC’s Squawk Box interview with Larry Fink of BlackRock, reveals that he favors an ether spot ETF.
EthereumETH, which uses ether as its native currency, has been the site of many major innovations in blockchain based finance. Even the SEC, in a notice from 2023, lists the achievements of the Ethereum ecosystem in the background section. Ethereum has a large base of committed developers. The main strategist and developer of Ethereum, Vitalik Buterin, is a very influential theorist and practitioner in the ecosystem. Buterin writes code and blogs lucidly and engages with his critics. Buterin has matured from a boy genius to an engaged and committed young man. Gavin Wood, Joe Lubin and others who were involved with Ethereum from the get go, are still engaged. Others, too numerous to name, have been writing improvement proposals and code. They work together under the Ethereum Foundation to move the ecosystem forward. Even though it is not one big happy family, it has not been damaged enough by dysfunction to drive positive change.
The Merge and on-going upgrades have reduced the energy consumption of the ethereum system by 95%. As a smart contract forward system the power of code, the cryptographic guarantees of the blockchain, and the crypto-economic design of governance structures have synergistically yielded a powerful financial foundation with many emergent capabilities. Experimentation and production deployments have continued apace.
Significant new innovations supported by Ethereum include the whole of DeFi, encompassing decentralized exchanges powered by automated market makers, yield aggregators, stablecoins, and NFTs. Liquidity and collateral management along with governance have also been tokenized. Many of the ideas are from traditional finance with a twist. Challenges remain, among them high cost of transactions, and scaling. Confidentiality is a challenge as well.
The differences between ether and bitcoin are striking. The main force behind bitcoin, Satoshi Nakamoto, has vanished. Nakamoto is probably in the happy hunting grounds. No voice comparable to Buterin’s authority exists in the bitcoin ecosystem. At this stage, change in bitcoin is very difficult, especially in the core ideas and components. It is also safe to say that Ethereum would not have existed without BitcoinBTC. The SEC sees both ether and bitcoin as commodities.
As an observer and participant, I have been involved in the developing story of both Ethereum and Bitcoin for more than 8 years. It is only a matter of time before the SEC approves an ether spot ETF. Prices of ether are rising in anticipation.
Fink also says in the Squawk Box interview quoted in the first paragraph these ETP approvals are stepping stones toward tokenization of securities. Fink says that along with tokenized identity it eliminates corruption such as money laundering in the current financial system. The coming disruption of traditional Financial Markets through tokenization may be a bigger story. Ideas, methods and capital from the Ethereum ecosystem are filtering into traditional finance. As an example, J.P. Morgan’s Onyx and the RLN network are offshoots of Enterprise Ethereum.
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