SEC Chairman Gary Gensler, not one to reveal his cards, offered a predictably optimistic outlook for an Ethereum ETF yesterday at the Bloomberg Invest Conference. After delivering his usual snide remarks about the cryptocurrency sector and accusing his interviewer of trying to get “clicks,” Gensler said the working process with the issuer is “progressing well.”
Gensler's unusual nod appears to support Bloomberg prognosticators' prediction that the ETF could launch as early as July 2. With crypto assets from Coinbase to Bitcoin crashing in recent days, could the arrival of an Ethereum ETF reinvigorate the bull market? After all, it was the approval and launch of a Bitcoin ETF in January that sparked the current rally.
The short answer is probably not. Ethereum has always been the less-loved little brother of Bitcoin, despite its new features like smart contracts, improved transactions, staking, and a host of other benefits. It’s been years since anyone predicted with a straight face the “Flippening,” the legendary day when Ethereum would overtake Bitcoin.
I met Christopher Perkins, president of venture capital firm CoinFund, who told me one of Ethereum's main challenges is branding. Bitcoin is easy. The cryptocurrency prototype insisted on the moniker “digital gold,” which any investor would understand. But Ethereum's value proposition may be hard to grasp for baby boomers trying to figure out where to put the millions of dollars they made selling the house they bought for $10,000 in 1970. What exactly are smart contracts, and why should you care? “Baby boomers with money don't dwell on things,” Perkins told me.
Despite all the buzz around Bitcoin ETFs, adoption of ETFs has been slow as investors become more comfortable with the new asset class. As Perkins noted, ETFs have two main advantages: regulatory certainty and operational scalability, or improved user experience. Bitcoin was never in a regulatory grey area thanks to its early designation as a commodity, but ETFs make it easier to buy Bitcoin directly with a brokerage account than it is to open a Coinbase or Robinhood account. But in Ethereum's case, the approval and launch of an ETF really creates a moat of safety that didn't exist before, especially after months of speculation that the SEC would reject the application.
Moreover, an Ethereum ETF offering yield could be a game-changer if approved by the SEC. Last year, Perkins spearheaded a project to provide a benchmark rate for Ethereum staking yields, noting that inflation-adjusted yields are often higher than U.S. Treasury yields. “ETFs will be very important, but they're also imperfect because they take away yield from investors in the first place,” he said.
So don’t expect a huge surge in adoption when an Ethereum ETF finally arrives next week, or shortly thereafter. But Perkins said people should take the long view: “This is just another step towards mainstreaming and de-risking regulations.”
Leo Schwartz
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