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It’s been a seismic week for crypto in the US, with two huge wins for the sector thanks to the rapid approval of spot Ethereum ETFs and the progress of a bill designed to provide a clear regulatory framework.
The former seemed impossible just a week ago, when Bloomberg ETF analysts pegged the chances of ETH ETF approvals at “small to zero.”
The passage of the Financial Innovation and Technology for the 21st Century Act (FIT21) by the US House of Representatives on May 22 was another huge breakthrough, made possible only because 71 Democrats crossed party lines and joined Republicans to advocate for to vote for its approval. It was the first time that a major crypto-related bill has passed any of the chambers of Congress.
The “sudden turnaround in regulatory sentiment” earlier this week came after “months of stalled talks,” JPMorgan analysts said. And then, out of the blue, the Securities and Exchange Commission (SEC) not only re-engaged with fund managers eager to launch Ethereum ETFs, but even fast-tracked the approval process.
Brad Garlinghouse, CEO of Ripple Labs, was so impressed with the developments he posted on X that it “feels like hell has frozen over!!”
Big Momentum in Crypto This Week – ETH ETF Adopted and Bipartisan Support for Crypto Legislation…
It feels like hell has frozen over!! 🥶 https://t.co/70T0qLt1FH
— Brad Garlinghouse (@bgarlinghouse) May 24, 2024
Ethereum ETF approvals aren’t the most important thing
What has changed? The answer seems simple: politics.
“The important thing here isn’t the ETF,” Adam Cochrane, partner at venture capital firm Cinneamhain Ventures, said in a May 23 post. after on X. “It is: total change in position by admin, forcing Gensler to concede.”
The root of that change was seemingly Donald Trump’s unexpected grab for the crypto vote in the upcoming presidential election. The man who once called Bitcoin “a scam” had not only gotten “good with it” but was even willing to accept donations in crypto for his campaign to oust President Joe Biden.
The shift was part of an effort to build a “crypto army” to counter the “anti-crypto army” led by Biden’s “official surrogate.” [Senator] Elizabeth Warren,” according to a campaign statement.
“If you are pro-crypto, you better vote for Trump,” the former president said.
BREAKING: 🇺🇸 Donald Trump now officially accepts #Bitcoin for campaign donations. pic.twitter.com/ySkwNQT1D2
— Bitcoin Magazine (@BitcoinMagazine) May 21, 2024
Trump had thrown down the gauntlet to a Democratic party that had accused Cardano founder Charles Hoskinson of “a coordinated effort to destroy crypto.”
Electric Capital co-founder Avichal Garg warned that Biden sticking to his anti-crypto stance would evolve the digital asset voter community “from Anti-Gensler to Anti-Biden to Anti-Democrats.”
Without warning, crypto had made an unexpected debut as a presidential election issue.
The Democrats’ answer is what crypto industry entrepreneurs have been dreaming of for years. The SEC, long the bane of the industry with its strategy of regulation by enforcement, early this week began rolling out the red carpet to fund managers from BlackRock to Fidelity that had filed to launch Ethereum ETFs. And within a few days they were approved.
What comes next?
Wider mainstream adoption, greater regulatory clarity, and possibly even a new boost for the US crypto industry.
Standard Chartered analyst Geoffrey Kendrick sees this week’s developments as a “turning point” for crypto, telling The Block that Solana ETFs and XRP ETFs are likely to follow Bitcoin and Ethereum in gaining regulatory approval in 2025.
“The core technology is so similar to ETH that it would be difficult for the SEC to argue that they were securities given the ETH position,” he said. “The crypto industry now appears to have political support on both sides of the aisle.”
Fund manager VanEck agrees. Head of Digital Assets Research Matthew Sigel posted on X that the improved political backdrop “will lead to further victories for investors and developers of digital assets, through new laws and in the courts, which will attract investment to bitcoin, ethereum and other open-source blockchain software.”
We are so pleased to confirm that the SEC, pursuant to Section 19(b) of the Securities Exchange Act of 1934, has approved our exchange partner CBOE’s proposed rule change to list and trade. @vaneck_us place #Ethereum ETF on the CBOE! 🥳🚀
TLDR: We expect that the improved political… pic.twitter.com/o6ZbFWKExi
— Matthew Sigel, recovering CFA (@matthew_sigel) May 23, 2024
Greater regulatory clarity now also seems likely, with the possibility of the more crypto-friendly Commodity Futures Trading Commission (CFTC) taking on a greater role in overseeing the sector. The SEC has now de facto admitted that Ethereum is not a security, while the transition to FIT21 law would give the CFTC more power and funding to oversee digital commodities.
In short, the US crypto industry is in a good position after a week that gave it a huge boost. It now seems like a long time ago that prominent crypto figures warned of the danger of the industry leaving the US due to its hostile regulatory regime.
Trump said: “If crypto leaves the US because of hostility towards crypto… well, we will stop it.”
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