In what could be a significant catalyst for Ethereum, Cathie Wood’s Ark Invest has applied for the first-ever spot Ethereum exchange-traded fund (ETF). This filing comes after a summer filled with ups and downs surrounding the launch and approval of the first-ever spot Bitcoin ETF.
So, could this new ETF from Ark Invest propel the price of Ethereum to new heights? There are several factors to consider.
Institutional demand
The launch of a spot Ethereum ETF may not be significant for experienced crypto investors. Why would they go through the added step of buying an ETF with management fees when they can already purchase Ethereum directly from a cryptocurrency exchange like Coinbase Global? The only allure of a spot crypto ETF is if investors want exposure to crypto without the risk or hassle of investing directly in it.
The real bullish aspect of a spot Ethereum ETF is that it signals pent-up institutional demand for the second-largest cryptocurrency in the world. Due to various constraints, many institutional investors are hesitant or unable to buy crypto directly. They don’t want to dabble in a volatile and poorly regulated industry with high risk. However, if there is a market-traded financial instrument approved by the Securities and Exchange Commission (SEC), like the Ark Invest filing, it makes Ethereum relatively safe for large institutional investors. This could potentially lead to a significant influx of new money into Ethereum, thereby boosting its price through increased demand.
Lessons from Bitcoin this summer
This summer, the Bitcoin market experienced a significant event: the filing for a spot Bitcoin ETF by BlackRock, the world’s largest fund manager, on June 15. This triggered a series of follow-on filings by other institutional investors, elicited responses from the SEC, and resulted in adjustments to those filings in line with SEC feedback. The anticipation of the first-ever spot Bitcoin ETF propelled the Bitcoin rally in June, with its price reaching $30,000 from around $25,000 on the day of the BlackRock ETF filing. Although Ethereum may not experience the same level of impact as Bitcoin due to institutional investors’ preference for Bitcoin, the Ethereum market could still be affected. Ethereum currently accounts for about 20% of the entire crypto market cap.
The heavy hand of the SEC
However, regulatory challenges exist, and the SEC plays a significant role in them. The SEC seems to have reservations about a spot Bitcoin ETF, despite approving futures-based Bitcoin ETFs. The timeline for SEC approval of a spot Bitcoin ETF remains uncertain. Moreover, in the case of Ethereum, Ark Invest is skipping a step by filing for a spot Ethereum ETF without an approved futures-based Ethereum ETF in the U.S. While several applications for a futures-based Ethereum ETF have been filed, no such ETF has been approved yet.
The big picture
Despite the regulatory challenges, Ark Invest’s decision to file for a spot Ethereum ETF indicates strong institutional demand for Ethereum. As crypto becomes increasingly mainstream for institutional investors, this bodes well for Ethereum’s future prospects. If Cathie Wood eventually secures SEC approval for the first-ever spot Ethereum ETF, it could lead to exciting developments for Ethereum.
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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
