Markets
ETFs on Ethereum are arriving. Will they be able to revive the tepid cryptocurrency markets?
Not one to show his cards, SEC Chairman Gary Gensler nevertheless gave an optimistic forecast on Ethereum ETFs yesterday, as might be expected, Speaking of at the Bloomberg Invest conference. Among his usual cold statements about the cryptocurrency industry, including accusing his interviewer of chasing “clicks,” Gensler said the process of working with issuers is “going smoothly.”
Gensler’s rare acquiescence appears to confirm Bloomberg’s predictions fortune tellers that ETFs could launch as early as July 2. With crypto assets from Coinbase to Bitcoin craterization in recent days, could the arrival of an Ethereum ETF reinvigorate the bull market? After all, approval and launch of Bitcoin ETFs in January served as the catalyst for the current rally.
The short answer is: probably not. Ethereum has always been Bitcoin’s least-loved little brother, even with its new smart contract capability, improved transactions, staking, and a host of other benefits. It’s been years since anyone predicted the “flippening” – the fabled day Ethereum will overtake Bitcoin – with a straight face.
I met with Christopher Perkins, president of VC firm CoinFund, who told me that one of the main challenges for Ethereum will be branding. Bitcoin is easy. The proto-cryptocurrency claims the moniker “digital gold,” which any investor can relate to. A baby boomer trying to allocate the millions of dollars he earned from selling a house he bought for $10,000 in 1970, however, might have a hard time grasping Ethereum’s value proposition. What exactly is a smart contract, and why should we care? “Those boomers, with money, they don’t ape things,” Perkins told me.
Despite the excitement around the Bitcoin ETF, we are seeing slow adoption as investors become increasingly comfortable with the new asset class. As Perkins said, ETFs offer two main benefits: regulatory certainty paired with operational scalability or improved user experience. Bitcoin, thanks to its early 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 setting up a Coinbase or Robinhood account. With Ethereum, however, the approval and launch of ETFs really creates a safety moat that didn’t exist before, especially after months of speculation that the SEC would reject applications.
Additionally, an Ethereum ETF that offers yield could be a game changer if the SEC ever approves it. Last year, Perkins led a project to provide a benchmark rate for staking returns on Ethereum, which, as he pointed out, is often higher than Treasury rates, when adjusted for inflation. “The ETF will be very important, but it’s also flawed because it will deprive investors of that return,” she said.
The story continues
So, if Ethereum ETFs finally arrive next week, or soon after, don’t expect a spike in adoption. But Perkins said he is taking a long-term view: “This is just another step towards integration and reducing regulatory risk.”
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
This story was originally featured on Fortune.com