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Bitcoin (BTC) prices have recovered and other top cryptocurrencies have gained ground over the past month as the U.S. Securities and Exchange Commission has surprised Wall Street by making a rule change to allow the creation of spot Ethereum (ETH) exchange-traded funds.
Investors already flocked to bitcoin and other cryptos following January’s SEC approval of the first spot bitcoin ETFs to trade on major U.S. exchanges. However, regulators continue to target the cryptocurrency industry by taking on crypto exchanges and their high-profile executives, including associates of former FTX CEO Sam Bankman-Fried.
In addition, crypto investors are hoping the Federal Reserve has made enough progress on inflation to navigate a soft landing for the U.S. economy and begin cutting interest rates in the second half of 2024.
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May Crypto Market Performance
After rising as high as $3,973 in the month, Ethereum was on track to close May above $3,770 as investors hoped the first spot Ethereum ETF to hit the market could be right around the corner.
Unlike futures ETFs—which use futures contracts to track the potential future price of an underlying asset, spot cryptocurrency ETFs track the current, or spot, price of a cryptocurrency.
Optimism surrounding potential SEC approval of spot Ethereum ETFs pushed other cryptocurrencies higher in the month of May as well, with bitcoin prices rising as high as $72,000.
However, the price of bitcoin pulled back from these highs by the end of the month, although BTC was still on track to finish May above $68,200.
In total, bitcoin prices gained 5.9% in May and are now up more than 60% year to date. Ethereum prices also gained more than 17.1% in the month and are up 64.1% overall so far in 2024.
Among the 10 largest cryptocurrencies by market capitalization, ChainLink (LINK) was the best May performer with a 29% gain. Cardano (ADA) was the worst performer with a 1.8% decline.
SEC Opens Door for Spot Ethereum ETFs
Less than six months after the SEC approved the first spot bitcoin ETFs, the regulator recently made a major rule change that could pave the way for the first spot Ethereum ETFs to trade on major U.S. exchanges.
On May 23, the SEC issued a rule change that allows three major U.S. exchanges to potentially list and trade eight different spot Ethereum funds. The approvals include the following exchanges and funds:
- NYSE Arca: Grayscale Ethereum Trust and Bitwise Ethereum ETF
- Nasdaq: iShares Ethereum Trust
- CBOE BZX: VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund and Franklin Ethereum ETF
This decision gives exchanges the green light to list SEC-approved spot Ethereum ETFs but only if the SEC has first approved the individual funds themselves. The rule change does not guarantee that all the funds mentioned above will be approved or that they will launch in the near future. The SEC must still rule on each spot Ethereum ETF application individually, and it has provided no timetable for those decisions.
Spot Bitcoin ETFs Led the Way
Following years of repeated rejections, the SEC finally approved the first spot bitcoin ETFs in January 2024, and the funds have been a success.
The 11 SEC-approved spot bitcoin ETFs have generated net inflows of more than $12 billion, according to FactSet. Leading spot bitcoin funds include BlackRock’s iShares Bitcoin Trust (IBIT) fund and Grayscale’s Grayscale Bitcoin Trust (GBTC), each of which have nearly $20 billion in assets.
Bitcoin and Ethereum Are Not the Same
Bitcoin and Ethereum have separated themselves from thousands of other cryptocurrencies as the clear market leaders, accounting for a combined 70.8% of the total global cryptocurrency market capitalization. However, although both bitcoin and Ethereum have been exceptional long-term investments up to this point, their designs and goals are very different.
Bitcoin investors see the cryptocurrency primarily as a store of value and an alternative to traditional government-backed fiat currencies.
Ether is the native cryptocurrency of the Ethereum network, which is home to decentralized applications, smart contracts, non-fungible tokens, or NFTs, and other decentralized blockchain projects.
How Spot Ethereum ETFs Might Differ From Spot Bitcoin ETFs
Market experts anticipate the first class of spot Ethereum ETFs will be much smaller than their spot bitcoin counterparts.
The Grayscale Ethereum Trust (ETHE), which currently trades over the counter in the United States, has only about $11 billion in assets under management. Grayscale secured a major legal victory over the SEC in 2023 that helped pave the way for the SEC to approve the first spot bitcoin ETFs just months later.
Joel Kruger, market strategist at LMAX Group, says the SEC ruling and the potential launch of spot Ethereum ETFs likely mean Ethereum prices are poised to make new all-time highs in the near future.
“As a reminder, both bitcoin and ETH had made record highs back in 2021, but only bitcoin has managed to take out that previous record high in 2024,” Kruger says.
“Given the positive momentum on the adoption and regulatory fronts, we suspect ETH will indeed succeed in making a fresh record high, which could very well translate to another big surge in bullish momentum over the coming days and weeks.”
Other Crypto Headlines
With the 2024 election season ramping up, cryptocurrencies are getting some high profile attention in Washington, D.C.
In May, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act by a vote of 279 to 136. The bill gained unanimous Republican support, and 71 House Democrats, including former House Speaker Nancy Pelosi, voted in favor of it as well.
If signed into law, this would provide a detailed framework for disclosure and registration of digital asset companies. It would also make the Commodity Futures Trading Commission, or CFTC, the primary regulator of the crypto industry.
The SEC has faced harsh criticism from crypto insiders for holding the industry to traditional disclosure regimes.
Crypto and the U.S. Presidential Race
Former president and presumptive Republican presidential nominee Donald Trump has seemingly changed his tune on cryptocurrencies.
In May, Trump said that if elected, he would commute the sentence of Ross Ulbricht, the cryptocurrency supporter and former operator of the black market website Silk Road, who is currently serving multiple life sentences. Although Trump has previously said he is “not a fan” of crypto, his campaign announced in May that it will now accept cryptocurrency donations.
Independent presidential candidate Robert F. Kennedy Jr. spoke at the Consensus 2024 event in late May, signaling his support for blockchain innovation and his commitment to protect the industry from hostile regulators.
Consensus 2024 was a cryptocurrency industry-related event hosted by crypto media company, CoinDesk.
Kennedy has previously highlighted the potential power of cryptocurrency to help protect the transactional freedom of Americans.
Phillip Shoemaker, executive director of Identity.com, says the 2024 election may be the first in which major U.S. politicians use cryptocurrency policies to attract voters.
“Congress pushed forward a market-structure bill as a way to properly regulate crypto, and this represents huge progress for the space,” Shoemaker says.
He says there are many voters in the crypto space that are one-issue voters, and politicians seem to be wising up to the opportunity that stance creates.
“You have Trump and RFK Jr. speaking positively about crypto—and, again, this is totally novel.”
Another FTX Sentencing
On May 28, former FTX executive Ryan Salame was sentenced to 7.5 years in prison for his role in crimes associated with the 2022 collapse of cryptocurrency exchange FTX.
FTX founder Sam Bankman-Fried was sentenced to 25 years in prison in March, but Salame is the first of Bankman-Fried’s associates to be convicted and sentenced as well.
Crypto Catalysts Ahead
One major cryptocurrency market catalyst in June could be the Federal Reserve. In addition to announcing a decision on interest rates at its meeting that concludes on June 12, the FOMC will also be providing updated long-term economic projections, including its expectations for how many interest rate cuts investors can expect in 2024.
The bond market is pricing in a 64.7% chance the Fed cuts interest rates by November 2024, but a hot May jobs report or inflation reading could pressure the Fed to maintain interest rates at their current level for longer than anticipated.
Stephanie Vaughan, co-founder of decentralized finance protocol Veda, says the launch of the first spot Ethereum ETFs will be a major crypto market catalyst in June and beyond.
“These ETFs are basically a traditional wrapper for accessing the emerging world of crypto—in this case, the most important smart-contract blockchain in the world. More than this, I think the Ethereum ETFs will help to drive education and understanding in terms of what Ethereum actually does and why it’s such an incredible innovation,” Vaughan says.
