Both the crypto market and TradFi lobbying groups were caught off-guard over the past 48 hours, as the SEC had a sudden about-face on Ethereum ETF approval. An abrupt request from the SEC to the various ETF issuers to update their latest ‘19b-4’ filings, and well as notification to NYSE, and CBOE that the funds will trade on the exchanges suggest that the ETH approval odds are quite certain.

In response, 5 of the proposed ETF issuers (Ark 21, Fidelity, Franklin Templeton, Invesco/Galaxy, VanEck) have amended their 19b-4s in the past 24 hours, with VanEck’s ETH actually listed on the DTCC depository under $ETHV. That was fast!

So was anything changed in the amended filings? ETF analysts reported that, unsurprisingly, the SEC required all the issuers to remove mentions all mentions of ETH staking as that was the agency’s major contention in insinuating that Ethereum is a security. So we will likely end up with an ETH ETF where the underlying asset cannot be ‘staked for income’. What if that was done through a centralized exchange wrapper, or if it was merely done with a 3rd party platform that wants to pay interest on deposits? How will the final language be written in the S-1? As we’ve said over and over again, it’s always good to be bullish on lawyers!

Naturally, ETH screamed, rallying 25% from ~3100 up to 3750 in less than 2 days, after the #2 token had been largely cast aside given its anemic performance over the past 2 years. Issues of falling fees, competition from L1-EVMs, and an over-focus on complex liquid staking and re-staking laying had taken away much of the original ‘sound money’ narrative of the pre-POS Ethereum. Similar to the BTC ETF approvals, the entry of ‘TradFi bros’ was again the catalyst that Ethereum needed to pull itself out of the nadir, as it had been underperforming BTC massively throughout the past year.

Obviously, unlike in January, the market now has a ‘playbook’ of how these ETF launches go, or at least a prior example to go off on:

  • Since the January BTC ETF approvals, Bitcoin prices have been increasingly driven by the pace of TradFi ETF inflows
  • Correlation of BTC with macro factors and even the Nasdaq have stayed much higher than prior cycles
  • BTC saw a rapid “sell the news” event in January which took BTC down from around 57k down to ~50k, before cumulative inflows ultimately took us to new highs at above $72k in a hurry. Will participants still sell the news this time around?
  • Has natives had enough time to accumulate ETH given how unpopular it has been? Approval odds have also been long ‘left for dead’ unlike the BTC ETF-leadup.
  • What will be the net price impact from the pent-up grayscale selling versus ETF inflows?
  • ETH float is much smaller than BTC, should we expect much sharper % moves from the net inflow/outflow movements in Ethereum going forward?
  • How aggressive with Larry Fink and Wall Street be promoting ETH this time around?
  • Will US markets continue to grow in influence (record high YTD) as trading volumes continue to shift towards the US timezone?
  • Timing wise, there’s still a long way to go from here to the final S-1 approval date. Will the macro picture (econ & rates) have changed a lot by the time the ETF launches?

Speaking of changing macro factors, while everyone is waiting for Nvidia earnings later today, a full line up of Fed speakers have quietly but decidedly flipped their interest narrative again, this time back to the hawkish side. In the current and past week alone:

Fed Governor Waller: “In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”

Vice Chair Jefferson: “It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting.”

2nd Vice Chair Michael Barr: “Inflation readings in the first quarter of this year were disappointing. These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy.”

Atlanta Fed Bostic: “I’m not in a hurry to cut rates… My outlook is that inflation will continue to fall for this year and into 2025,” he said, adding that prices will, however, drop at a slower pace than many had expected.

Cleveland Fed Mester: “I was on the record before saying I was at the median [forecast] which was three [cuts]. The developments I’ve seen in the economy right now, I would not think that that’s still appropriate… I need to see a few more months of inflation data that looks like it is coming down.”

SF Fed Daly: not clear whether inflation is definitively receding and there is no “urgency” to cut rates.

Speaking of not paying any attention, we are now 313 days into a period where the SPX has not had a daily sell off of worse than 2%, with the most recent episode being 2016–2018 where we saw a streak of 351 days. The longest period was during 2003–2007 where we saw ~3 years with no 2% sell-off (I’m old enough to remember those days). No wonder everyone is selling vol.

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