Why The Approval Of The Ethereum ETF Backs The SEC In A Corner

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Summary:

The host discusses the SEC's recent approval of spot ETFs for cryptocurrencies, particularly Ethereum. This represents a significant reversal from the SEC's previous stance, where the chairman Gary Gensler had suggested that Ethereum could be considered a security. The host speculates on what may have led to this change in position, questioning whether Gensler faced pressure from within the Biden administration or elsewhere.

The host highlights the importance of legal precedent, noting that the SEC's approval of Ethereum-based ETFs could make it difficult for them to reject applications for ETFs tied to other cryptocurrencies like Solana, which is a fork of Ethereum. However, the host believes the impact on Ethereum itself may be limited, as the interest and inflows into Ethereum ETFs are likely to be significantly lower than those for Bitcoin ETFs.

The host also notes that one of the conditions for the Ethereum ETF approval was that the issuing companies would not be allowed to stake the Ethereum, which the host sees as a positive step in preventing these institutions from gaining too much control over the network's governance. Overall, the host views this development as Wall Street gaining more influence in the crypto space, though the core development and decentralization of these networks may remain outside their reach.

Detailed Analysis:

The host begins by discussing the SEC's recent approval of spot ETFs for cryptocurrencies, particularly Ethereum. He notes that while the SEC has approved these applications, the ETFs have not yet started trading, as there is still some additional paperwork and procedural requirements that need to be completed, which could take a few weeks to a couple of months.

The host then delves into the significance of this approval, highlighting the apparent reversal in the SEC's stance. He notes that the SEC chairman, Gary Gensler, had previously taken the position that Ethereum could be considered a security, and thus subject to securities laws. However, the host questions what may have led to this change in position, wondering if Gensler faced pressure from within the Biden administration or elsewhere.

The host emphasizes the importance of legal precedent, explaining how attorneys often cite past cases and decisions to support their arguments in lawsuits. He draws a parallel to the SEC's previous action against Block One, the company behind the EOS cryptocurrency, where the SEC imposed a fine but did not pursue criminal charges, effectively establishing a precedent that Ethereum could be treated as a commodity rather than a security.

The host then speculates on how this precedent could impact the SEC's ability to reject future applications for ETFs tied to other cryptocurrencies, such as Solana, which is a fork of Ethereum. He suggests that it would be difficult for the SEC to reject these applications, as they have now effectively acknowledged Ethereum as a commodity.

However, the host believes that the impact on Ethereum itself may be limited, as he expects the interest and inflows into Ethereum ETFs to be significantly lower than those for Bitcoin ETFs. He goes on record stating that from the day the Ethereum ETFs start trading, the alpha (or outperformance) of Bitcoin ETFs will be greater than that of Ethereum ETFs.

The host also notes a positive aspect of the ETF approval, which is that the issuing companies have agreed not to stake the Ethereum, meaning they will not be involved in the network's governance. The host sees this as a step in the right direction, as it prevents these institutions from gaining too much control over the network.

In conclusion, the host views this development as Wall Street gaining more influence in the crypto space, but he believes that the core development and decentralization of these networks may remain outside their reach. He expresses uncertainty about how the situation will unfold, but he remains cautiously optimistic about the potential implications for the broader crypto ecosystem.