WTF ETH ETF: Ethereum ETFs to the Rescue!

The significance of the Ethereum ETF to both the crypto industry and the global economy.

by Adam Chorley

The Ethereum (ETH) ETF has been approved, which is huge for the whole crypto industry. That is plainly obvious to even the most casual observer. Although it's not the first crypto ETF, we had the Bitcoin (BTC) ETF approved earlier this year, the Ethereum ETF really is the moment we crossed the Rubicon. 

It played out very differently from the Bitcoin ETF, which had been in the offing for over 4 years. Moreover the lead up was long and drawn out and eventually it became the worst kept secret on Wall Street. With months of appearances on CNBC’s ‘Squawk Box’ from Blackrock, VenEck, Ark and alike culminating in virtually every ETF issuer putting out adverts about Bitcoin in the week leading up to the acceptance by the SEC. In stark contrast the ETH ETF was not on anyone's agendas in May despite the decision deadline looming. 

But then seemingly out of nowhere two days before the deadline, a raft of the ETF issuers updated their 19B-4 filings on an accelerated basis. It seemed like a bolt out of the blue, though clearly a lot of talks between the issuers and the Securities and Exchange Commission had been ongoing for months. The first clue being when staking was dropped from the fillings to make it more vanilla and closer to the Bitcoin ETF which had already been passed. 

This lack of build up can be seen in the charts, when comparing Ethereum's price in the preceding 3 months before approval and Bitcoins. Due to the long drawn out nature of the Bitcoin ETF acceptance the price rose by 75.5%, white Ethereum has done a rather paltry 17% in the last 3 months. That included a rather large correction of 25% from a $4,051 yearly high. 

This means that virtually none of the ETH ETF is currently priced in, looking at the Ethereum and Bitcoin performance over the last 8 months (3 Months before the BTC ETF was approved). We can see that Ethereum has underperformed compared to Bitcoin by 75%. That is equivalent to the whole of the Bitcoin ETF price run up. So we may over the next few months see Ethereum catch up and post some very healthy gains. 

A word of warning here; Bitcoin did retrace by 21% after the announcement on 11th Jan. But as it was priced in already it was a sell the news event. One might argue we have the reverse situation with Ethereum. 

But what makes the Ethereum ETF so significant is not the nature of how it was announced, but the material difference between Bitcoin and Ethereum. 

Bitcoin was the original cryptocurrency and although a trailblazer the first of any technology is rarely the best, just look at Betamax Vs VHS. Bitcoin, although unique at its inception, as peer to peer, trustless digital money is now lacking many features offered by later cryptocurrency arrivals like Ethereum. 

Ethereum is by far and away the most ubiquitous and popular tokenisation network. It has taken crypto from a relatively small use case as digital money, to programmable money supported by a decentralised global computer known as EVM (Ethereum Virtual Machine). This is what makes the Ethereum ETF very different to the Bitcoin one. 

The ability to transfer data and value in one transaction changes the world of digital finance completely. The day after the Bitcoin ETF was launched Larry Fink the CEO of Blackrock went on CNBC and openly talked about tokenising traditional finance.

“ETFs are step one in the technological revolution in the financial markets,” he said. “Step two is going to be the tokenisation of every financial asset.” Larry Fink 

There were also other very significant shifts in this direction this week, that have been a little overshadowed by the ETF approval. The Financial Innovation and Technology for the 21st Century Act (FIT21); was passed by a 279-136 vote and will now be passed to the US Senate to enact. The bill is intended to support the US crypto industry by providing legal clarity and protection for cryptocurrency users. 

According to Republican Rep. Patrick McHenry, the bill will end the “food fight for control” of crypto between the SEC and the Commodity Futures Trading Commission (CFTC) which has undoubtedly held back the crypto industry. 

In a further shift away from the SEC’s the ETH ETF was listed as a ‘Commodity based’ ETF. The significance of this cannot be understated. With about 80% of all crypto’s outside of Bitcoin having some link to Ethereum, the SEC with the stroke of a pen has taken nearly the entire crypto industry out of draconian securities regulation and classified it as a commodity. 

It paves the way for the entire traditional finance industry to be tokenised on platforms already built and in use. While at the same time allowing existing tokens the chance to seek validation and liquidity from traditional finance. 

The Perfect Storm

As if these two tail winds weren’t enough to whet the appetite and usher in the era of crypto going mainstream, there are other not inconsequential factors at play. 

As I’m sure is clear to most people globally, inflation has been rather stubborn and not at all transitory as suggested by Jerome Powell the Fed Chair in 2021. Anyone with even a passing knowledge of economics could see that unfettered money printing would lead to a long period of inflation. The slow hikes in interest rates exacerbating the problem even further leading to 3 painful years of high cost for consumer goods, labour and utilities. 

In short inflation has been a shit show. It means that hard working people are far poorer and the wealth gap is far wider than it was pre-pandemic. But despite all of this the stock market has been on a long uninterrupted run since the Covid crash. 

This may sound good on the surface, however, it's really just a symptom of hyperinflation. Throughout history there are examples of hyperinflation leading to historic stock market rallies. From the Weimar Republic of Germany (1918-1929), Mugabe’s Zimbabwe (1987-2019) and Venezuela’s Chavez Era (1999-2013); all saw huge asset rises as these governments mercilessly printed money. 

The problem occurs when wealth is concentrated around a small group of people who happen to own assets. What's even worse this time around is that the the rise in the S&P 500 has been hugely driven by just 7 Stocks; Amazon.com (AMZN), Apple (AAPL), Google parent Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). 

They account for nearly 30% of the total value of the S&P and while they have risen by around 75% since 2023, the rest of the index has lagged behind with just 25% growth. 

This paints a very gloomy picture, the markets are effectively flat if it weren't for abnormally high inflation and the market share is getting sucked into a very small group of stocks and therefore people. To add insult to injury, interest rates have shot up in response to the inflation from 0% to 5.5%. Causing a shock to anyone borrowing money, with regular consumers with credit cards and mortgages left with much higher borrowing rates. 

Banks too have found themselves with a huge problem caused by higher interest rates. They have now virtually run out of money due to buying lots of Treasury bills with zero percent interest, which have significantly been devalued as newer higher yielding T Bills are flooding the markets. We have seen multiple banks failing last year with the biggest being Credit Swiss, which dumped onto UBS by the Swiss government. 

This means there could potentially be another banking crisis similar in size and significance seen in 2008. This of course would signal a complete failure of all western governments monetary policies. A death knell for fractional reserve banking, global debt structuring and dollar hegemony. In short, end of day’s stuff. 

So what will the solution be? Print more money of course. Before the inevitable Davos 2025 conference when the west will suddenly decide they want to cancel world debt and start the whole cycle again. That is unless they can find an alternative solution. 

The Alt Solution…

So how does this all jive with allowing a few TradFi investors to buy Ethereum through an ETF? Well markets need something new and shiny to play with, to get all the sidelined dollars, plus dollars tied up in the mega 7 stocks, back into the system to generate growth. 

The reason that financial markets, lending, borrowing, futures and stocks investments exist is to create growth. When the money stops flowing the music stops and things start to fall apart. 

If crypto and tokenisation start to reform the traditional finance system then suddenly capital becomes frictionless. It will allow more investment to flow through the financial system with less bottlenecks and create a plethora of new exciting financial products for people to invest in. It’s hard to encapsulate the level of change and innovation that could take place as a result of the ETF being announced, but there's an unlimited amount of upside from here. 

The cyclical nature of the bitcoin halving normally fires the starting gun for a bull market in crypto. But this time it really is different, the institutions are finally here. Cathie Wood, CEO of Ark investments and issuer of both a BTC and ETH EFT, predicts the crypto market will explode ‘to $25 trillion in 2030’. 

The tide has turned on the crypto industry, the weird memes, degen culture and PfP NFT’s are about to go mainstream. Sometimes you get the hero you need, not the one you want, but crypto, the unlikely hero, could be about to save the world!