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    Key Takeaways

    • The crypto market has seen increased volatility off the back of ETF developments in the last couple of weeks
    • Grayscale secured a positive ruling in its case against the SEC regarding its ETF application
    • Markets subsequently fell as the regulator pushed out the approval date of all ETF applications
    • Cathie Wood’s ARK Invest has now filed for a spot Ether ETF
    • Market is largely anticipating the approval of a futures-based Ether ETF before mid-October
    • ETFs are inevitable, and while the headlines may be repetitive, there is little volatility coming from anywhere else these days

    The crypto markets are still enduring uncharacteristically low volatility, but there has been at least a little pickup in recent weeks. 

    Most of it is due to ETFs, whether one way or another. Last week saw Grayscale secure a landmark decision against the SEC, with a federal court ruling that the SEC was wrong to reject an application from Grayscale Investments to convert its trust into an ETF. The judge said the regulator failed to “offer any explanation” following its decision. 

    This sparked a fresh wave of optimism that not only would Grayscale secure ETF approval, but the slew of other applications currently on the waitlist would also be successful. 

    However, markets gave back most of those gains when the SEC announced shortly thereafter that it was pushing out the decision on all ETFs until October. 

    This delay aside, however, the regulatory picture is brightening significantly for crypto. Only a few months ago, the future of the entire industry seemed to be under threat in the US. While there remains serious concern over large swathes of the space (the myriad allegations against Binance alone could prove seismic), it is beginning to feel inevitable that ETFs are simply a matter of time. 

    Not only that, but hope is now swelling that Bitcoin may not be the only asset to achieve the ultimate stamp of approval. Cathie Wood’s Ark Invest and 21Shares have filed for a spot Ethereum ETF, the first attempt to list such a fund in the US. 

    While this represents the first spot ETF attempt, there have been several applications on the futures side for Ether. Bloomberg reported in August that the regulator would likely approve these products, which number nearly a dozen – an expectation that most around the industry are in line with. 

    The SEC’s hesitance regarding spot ETFs has centred around the fact that there is not a regulated crypto market of sufficient size to prevent market manipulation. While many decry this refusal to approve the ETFs as unjustified, it is easy to see their hesitance when looking at the state of liquidity. Spot volumes have been decimated this year, while futures and derivatives have fared far better.

    In truth, when the approval does come, it should bolster liquidity itself, in somewhat of a chicken and egg problem. And with demand increasing for these products, there is only so long that the SEC can resist approving these products. 

    The macro situation may also play a role here. Interest rates have been hiked from near-zero to north of 5% in the US in what amounts to one of the swiftest tightening cycles in modern history. Accordingly, investors have retreated along the risk curve. Crypto is about as risky as it gets, with prices crashing as a result. Despite Bitcoin rising 55% thus far this year as inflation softened quicker than anticipated and expectations around the future path of interest rates became more optimistic, it is still over 60% off its high from Q4 of 2021. 

    Yet the market is now anticipating only one more (if even) rate hike still to come, something which may spur more investors to move back into the space and liquidity to bounce back. There is also the matter of the halvening in April 2024, although it remains too soon to declare with confidence what the effect of that event will be. 

    We will likely look back upon these days as low-level, bureaucracy-driven table setting for what lies ahead. Even already, the various ETF news is not having quite the same effect as some of the earlier stories this year – the Ethereum ETF application barely moved markets an inch. But it’s all necessary for this nascent asset class. And in recent times, it has been about the only source of volatility at all.



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