On Monday afternoon last week, the U.S. Securities and Exchange Commission (SEC) approved nine Ether ETF’s - marking the first ever Spot-Ethereum exchange traded funds (ETF’s) to be authorised. This comes two months to the day after the SEC approved the applications from Nasdaq, CBOE, and NYSE to list them and shows not only the speedy turnaround for the approvals process, but also the global change in feeling towards cryptocurrency as a whole. With the rush on for cryptocurrencies and crypto-assets to dominate the market we are reminded that this arms-race should not forget their accompanying regulations. 

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The approval comes following the debut of Ether Futures in 2023 and Bitcoin’s ETFs in January this year. These latest developments grant cryptocurrency a stronger foothold in traditional US financial markets and have paved the way for Ether ETFs to launch through issuers such as Invesco Ltd., Fidelity Investments, and, more notably, BlackRock Inc who began trading on Tuesday morning. 

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Ether is the native cryptocurrency of Ethereum blockchain, a decentralised peer-to-peer network containing the storage values of all Ethereum accounts and transactions in a public distributed ledger. As the second-largest crypto token globally, Ethereum has garnered significant attention in comparison to its competitor, Bitcoin, as it is faster and can support a more versatile range of decentralised applications.  

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With the approval on Monday, Ether has seen a total 47 percent price increase this year to date, and sees it sitting at a market capitalisation of about $415bn. Although Ether ETFs are expected to attract less investment compared to those of Bitcoin, analysts predict that they may still garner 10-15% of the assets that Bitcoin did, not least due to BlackRock launching its iShares Ethereum Trust ETFs (ETHA) at a reduced fee of only 0.12% for the first year and first $2.5 billion of assets under management. 

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As the world’s largest asset management firm, Blackrock is no stranger to market movement hinging on their views - when they registered to list Ether EFTs back in November, the price per share surged past $2000, rising 10% overnight. Their involvement tends to boost market confidence, leading to increased investment from other institutional players and positive price movements.

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Not content to focus on merely launching ETFs, Blackrock has issued a comms alert warning users of potential scams surrounding the lucrative new crypto asset. Posting on X, formerly Twitter, late on Monday night, Blackrock urged caution in using social media links to invest, warning of illegal solicitation and fraudulent investment offerings. Ironic though it may have been, to post a social media link in the warning post against such a thing, Blackrock does still head up the growing concern over regulations in the wake of new ETF growth, rightly highlighting some of the issues surrounding the boom in crypto-assets.

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Coinbase and their subsidiary, CB Payment’s Ltd, have been fined £3.5m for their lack of due diligence in providing payment services to over 13,000 high risk customers, in a breach of their October 2020 FCA agreement.  Cases such as these highlight the necessity for KYC guidelines, and nod to the regulatory grey area overseeing the classification of Ethereum as either a commodity or a security - a hotly debated topic recapitulated in CFTC’s lawsuit against Binance, the SEC’s application of the Howey Test, and in the high-profile debate between SEC Chairman Gary Gensler and the Chairman of the House Financial Services Committee Patrick McHenry (R-NC).

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This distinction becomes imperative should exchanges need to delist the token, leaving a gaping hole in the defences of global liquidity and underpinning the vulnerability of the market in the face of regulatory oversight. This threat does however double as an opportunity since establishing the regulatory and market frameworks for one major asset will make subsequent products easier to introduce, leading in turn to a potentially more diverse and robust market which legitimises the crypto-based world and could broaden investor participation. 

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The speed at which financial products such Ether EFTs are being developed, rolled out, and approved, leaves much to be desired in the way of accompanying regulations. With applications such as stablecoins, decentralised finance, NFT’s and Smart Contracts all running predominantly on Ethereum, the necessity for expeditious regulatory controls is already afoot. The SEC has long been wary of the cryptocurrency market due to concerns over market manipulation, money-laundering, fraud, and the volatile nature of crypto-assets. Although this caution manifested itself initially in the slow approval of the first ETFs, and the long debate around cryptocurrency’s security and commodity classifications, we can only hope that this Hemingway-esque “Gradually, then Suddenly” approach will not leave us all in the lurch, with cryptocurrency being the one For Whom the Bell Tolls. 

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