Author: Nancy, PANews

Months of Ethereum FUD have been invigorated by a bullish candlestick, boosting market confidence. For two consecutive days, the approval rate of Ethereum spot ETFs has significantly increased due to multiple sudden developments, causing Ethereum prices to surge. Market expectations are generally optimistic, with ConsenSys CEO even stating that the "demand flood" for Ethereum spot ETFs could lead to supply shortages, making its price more responsive to capital inflows. Has Ethereum entered a bull market uptrend?

Compliance-driven removal of staking content, but Ethereum spot ETF approval still needs time

As the SEC's deadline for multiple Ethereum spot ETF approvals approaches, the market has received a series of good news. In addition to Bloomberg ETF analysts suggesting that the U.S. government's stance on Ethereum spot ETFs may change due to political shifts, insiders have revealed that the SEC has asked Nasdaq and the Chicago Board Options Exchange to amend their Ethereum spot ETF applications in preparation for approval. The regulatory body is inclined to approve Ethereum spot ETFs and has provided feedback on these applications.

Currently, multiple issuers have accelerated their related proposals. Six Ethereum spot ETF applicants have submitted revised 19b-4 forms, including VanEck, Fidelity, Franklin, Ark Invest, Grayscale, and Invesco Galaxy. The 19b-4 form is used to notify the SEC of rule changes allowing funds to be traded on exchanges and is one of the necessary documents for ETF approval. According to Bloomberg senior analyst Eric Balchunas, the SEC is expected to return the revised 19b-4 forms for Ethereum spot ETFs by 10 a.m. local time on Wednesday. The president of ETF Store also predicted that the SEC might approve them this week.

Notably, possibly due to compliance requirements, entities like Grayscale, Fidelity, ARK Invest, and 21Shares have removed staking-related content. Galaxy Digital's head of research, Alex Thorn, commented that if the speculation about the SEC's 180-degree shift in attitude towards Ethereum ETFs is true, they might try to find a balance between ETH itself not being a security and staked ETH being a security, aligning with their various lawsuits and investigation reports.

Furthermore, the listing of Franklin Templeton and VanEck's Ethereum spot ETFs on the DTCC (Depository Trust Clearing Corporation) website is also seen as a positive signal. However, it should be noted that appearing in this qualification document does not represent the outcome of any pending regulatory or other approval processes. This is a "standard practice" by the DTCC in preparation for new potential ETF issuances, and the SEC's approval results and timing remain uncertain.

Additionally, from the SEC's approval timeline, the official launch of Ethereum spot ETFs may still take several months. On one hand, although the 19b-4 is expected to be approved, the S-1 registration application still needs approval. This is a registration statement that companies must submit to the SEC before publicly issuing stock, and there is no deadline for its approval. According to renowned financial lawyer Scott Johnsson, considering the SEC previously took nearly four months to review and amend the S-1 form for Bitcoin spot ETFs and five months for Bitcoin futures S-1 forms, the Ethereum spot ETF may also take time in the S-1 application approval process, possibly at least a few weeks or even months. On the other hand, BlackRock's involvement, as a leading Bitcoin spot ETF applicant, is also believed to influence the approval process of Ethereum spot ETFs to some extent. August 7 is the final deadline for BlackRock's application approval.

It is worth mentioning that the approval of Ethereum spot ETFs is also seen as a shift in U.S. crypto regulatory trends. Variant's Chief Legal Officer Jake Chervinsky stated that if Ethereum ETFs are approved, it would signify a significant shift in regulatory attitudes in Congress, which might be more important than the ETF itself. Dragonfly partner Haseeb Qureshi also commented on the X platform, "The regulatory shift towards Ethereum ETFs indicates that the Biden administration will soften its crypto policies because they don't want to lose votes over 'small issues' (referring to crypto regulation) in the election competition. In the coming months, the market will see other regulatory agencies also changing their attitudes."

Spot ETF demand and reduced supply may drive price increases

For Ethereum, which has been plagued by negative news, the significantly increased likelihood of Ethereum spot ETF approval has undoubtedly broken its low popularity status.

In addition to Ethereum prices hitting a new high in nearly two months, surpassing the market value of the Vanguard SP 500 ETF and Mastercard, Ethereum-related trading activities have also surged. On-chain analyst Ember detected multiple whales buying ETH during the price increase, most using leverage. Coinglass data shows that the total open interest in Ethereum futures contracts across the network has reached $15.6 billion, continuing to set historical highs.

The market is also optimistic about Ethereum's future performance and has made positive predictions. On one hand, the approval of Ethereum spot ETFs will bring strong capital inflows. For example, ConsenSys founder and CEO Joe Lubin believes that institutions that have already accessed Bitcoin through the newly launched Bitcoin ETFs are "most likely to want to diversify their investments into the second approved ETF." The natural, pent-up demand to buy ETH through ETFs will be substantial, making ETH's price more sensitive to capital inflows.

Standard Chartered pointed out that the approval of Ethereum spot ETFs could bring $15 billion to $45 billion in capital inflows within the first 12 months, equivalent to 2.39 to 9.15 million ETH, potentially driving Ethereum prices to $8,000 by the end of 2024. Similarly, Bitcoin spot ETFs have brought tens of billions of dollars into the Bitcoin market. According to SoSoValue data, as of May 22, the total net asset value of Bitcoin spot ETFs exceeded $58.9 billion, with an ETF net asset ratio (market value to total Bitcoin market value ratio) of 4.29%, and cumulative net inflows exceeding $13.17 billion.

At the same time, the continuous reduction in the supply of Ethereum available for purchase is also considered an important factor. As Coinbase recently reported, there is no "major source of supply-side excess" for Ethereum, such as token unlocks or miner sell-offs causing pressure. On the contrary, both staking and Layer 2 growth have proven to be important and growing consumption avenues for ETH liquidity. Similarly, Joe Lubin also stated that compared to the approval of Bitcoin spot ETFs in January this year, the supply available to meet institutional demand for ETH will be less, with a significant portion unavailable for ETF use. On-chain data shows that over 27% (as of May 22, the total staked amount on the Ethereum Beacon Chain exceeds 32.55 million ETH) of the total ETH supply is staked on the Ethereum network. These ETH are locked in contracts, earning returns for their owners. Many ETH are used in core protocols, decentralized financial systems, or DAOs.

Additionally, Joe Lubin mentioned that new activities on Ethereum will lead to the destruction of a large amount of existing ETH supply over time, further limiting supply. Ultrasound data shows that since the implementation of the Ethereum fee burn mechanism, a total of over 4.298 million ETH have been burned, with an overall supply growth rate (i.e., inflation rate) of -0.73%.