Markets
Ethereum ETFs are coming. Can they revive tepid crypto markets?
Without showing his hand, SEC Chairman Gary Gensler still gave as bullish a prognosis on Ethereum ETFs as one could expect yesterday, Talking at the Bloomberg Invest conference. Among his usual frosty statements about the crypto sector, including accusing his interviewer of going after “clicks,” Gensler said the process of working with issuers was “going well.”
Gensler’s rare acquiescence appears to confirm Bloomberg predictions fortune tellers that ETFs could be launched as early as July 2nd. With crypto assets from Coinbase to Bitcoin craters In recent days, could the arrival of an Ethereum ETF reinvigorate the bull market? After all, approval and to throw of Bitcoin ETFs in January served as a catalyst for the current rally.
The short answer is: probably not. Ethereum has always been Bitcoin’s least-loved little brother, even with its innovative capabilities for smart contracts, enhanced transactions, staking, and a host of other advantages. It’s been years since anyone predicted the “flippening” — that legendary day when Ethereum overtakes Bitcoin — with a straight face.
I spoke with Christopher Perkins, president of venture capital firm CoinFund, who told me that one of the biggest challenges for Ethereum will be branding. Bitcoin is easy. The proto-cryptocurrency has claimed the moniker “digital gold,” which any investor can relate to. A baby boomer looking for where to allocate the millions of dollars he made selling a house he bought in 1970 for $10,000, however, might have a harder time understanding Ethereum’s value proposition. What exactly is a smart contract, and why should we care? “Those boomers, with the money — they don’t get involved in things,” Perkins told me.
Even with the excitement surrounding the Bitcoin ETF, we are seeing slow adoption as investors become more comfortable with the new asset class. As Perkins said, ETFs offer two main advantages: regulatory security combined with operational scalability or better user experience. Bitcoin, thanks to its initial commodity designation, has never really been in a regulatory gray area, although ETFs have made it easier for people to buy them directly in their brokerage accounts rather than opening a Coinbase or Robinhood account. With Ethereum, however, the approval and launch of ETFs genuinely creates a security moat that didn’t exist before, especially after months of speculation that the SEC would reject the applications.
Furthermore, an Ethereum ETF that offers yield could be a game changer if the SEC ever approves them. Last year, Perkins led a project to provide a benchmark rate for Ethereum staking yield, which he highlighted is many times higher than Treasury rates when adjusted for inflation. “The ETF will be very important, but it will also be imperfect because it will deprive investors of that income from the beginning,” he said.
The story continues
So if Ethereum ETFs finally arrive next week or soon after, don’t expect a surge in adoption. But Perkins said to take a long-term view: “This is just another step in integrating and reducing regulatory risk.”
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
This story was originally featured in Fortune.com