How a new SEC chair can boost Ether price and ETF inflows

As a seasoned observer of financial markets and regulatory trends, I find myself intrigued by the potential impact of a new SEC chair on the staking landscape for cryptocurrencies like Ethereum. Having navigated through the tumultuous waters of market volatility and regulatory changes throughout my career, I’ve come to appreciate the delicate dance between innovation, investor protection, and compliance.

It seems likely that Gary Gensler, the current chairman of the U.S. Securities and Exchange Commission (SEC), may soon step down following President-elect Donald Trump’s landslide win.

Financial analysts and political commentators expect Donald Trump may appoint a new leader for the commission, which could potentially allow spot Ethereum ETFs to provide staking incentives, thereby increasing the value of Ether (ETH).

Trump expressed ambitious pledges towards the U.S. cryptocurrency sector, including plans to dismiss Gensler early in a potential new term. However, executing such a move may not be straightforward.

In simpler terms, Andrew Rossow, a lawyer specializing in cyber and digital media, explained to CryptoMoon that the president holds the authority to appoint and dismiss specific individuals, including an SEC commissioner.

Instead, he noted that it’s somewhat unclear if the president has the authority to dismiss the Securities and Exchange Commission (SEC) chairman personally.

As an analyst, I would articulate it this way: I must ensure that any termination of Gensler is warranted and based on specific reasons such as neglect, inefficiency, or misconduct. A hasty dismissal without proper cause could potentially trigger political repercussions for the administration, given the unprecedented nature of such a move.

Rossow implied that Trump might remain unfazed by any potential political repercussions, given the widespread discontent among the digital asset community towards Gensler’s “regulation-by-enforcement” strategy. Moreover, Trump’s aggressive political demeanor suggests he pays scant attention to established systemic standards.

namely, a more expedient way.

“The president can demote the chair any time and replace him with one of the other sitting commissioners. That could happen immediately.”

Rossow stated that, according to Reorganization Plan No. 10, the president holds the authority to shift the role of chair among commissioners. He explained that President Trump could exercise this power by appointing another SEC Commissioner to the position on the basis of carrying out his constitutional duty of executing his powers faithfully.

Generally speaking, “SEC chair positions often end when there’s a shift in the White House during their tenure,” as Rossow explained.

Goforth pointed out that if Gensler stepped down, the process of selecting a new SEC chairman would become more intricate. This is because the appointment necessitates confirmation by the Senate, an extended and potentially challenging process that includes hearings and political bargaining.

In my analysis, I find that securing Senate approval may present a relatively straightforward path for President Trump, given the Republican party’s majority control over the legislative branch.

Trump has expressed his intention to choose an SEC chairman who supports cryptocurrencies. One of the restrictive measures taken by the SEC that has hindered the growth of the U.S. crypto sector involves their consideration of staking as a form of securities offering.

There’s optimism that the appointment of a new Securities and Exchange Commission (SEC) chairman could halt current regulatory actions and potentially enable ETF providers to introduce staking opportunities.

Ether staking could boost struggling spot ETFs

The value of Ether hasn’t been meeting the predicted market standards. Compared to Bitcoin and its competitor, Solana (SOL), Ether’s performance in terms of price has been subpar. One reason for this could be the lackluster outcomes from the Ether Exchange-Traded Funds (ETFs) since their debut.

Market analysts anticipated that Ether Exchange-Traded Funds (ETFs) would mirror the achievement of Bitcoin ETFs. On November 7 alone, BlackRock’s Bitcoin ETF attracted more than $1.1 billion, increasing its total Bitcoin ETF assets under management (AUM) to over $25 billion.

On November 8th, BlackRock’s iShares Ethereum Trust ETF recorded one of its highest inflows, totaling approximately $86 million. This brought the total assets under management (AUM) to over $8 billion. However, this surge in investments didn’t counteract the outflows from Grayscale’s Ethereum Trust ETF, which has been hindering their overall growth trend.

21Shares’ U.S. head, Federico Brokate, shared with CryptoMoon that the flow of ETH ETF has been relatively low so far. Yet, he maintains a positive outlook, expressing confidence that interest in Ethereum will pick up speed. In his words: “We’ve noticed consistent demand for Ethereum, but we expect this demand to increase at an accelerated pace.

“Institutional interest is expected to grow as regulatory clarity around ETH as a commodity strengthens confidence.”

According to Brokate’s statement, the absence of staking opportunities for ETF (Exchange Traded Fund) investors is a key reason behind the subpar performance of spot ETH ETFs. Essentially, staking provides a source of passive income that may have deterred crypto-native or crypto-adjacent individuals, who are likely early adopters, from investing so far because they can’t access this feature through ETFs.

As a crypto investor, I’ve just learned from an onchain data researcher and former 21Shares analyst, Tom Wan, that he anticipates spot Ethereum ETFs might outperform spot Bitcoin ETFs in terms of attracting investments. His reasoning is that by offering passive yields through staking, these Ether ETFs could appeal to investors more effectively.

The method for distributing staking rewards can change based on the specific regulations and operations. In this scenario, ETF creators might gather these rewards, thereby eliminating management fees and promoting their products as fee-free or low-fee due to the staking rewards earned.

As a researcher exploring the realm of Ethereum Exchange-Traded Funds (ETFs), I’ve noticed that the fees charged by issuers range from 0.15% to 0.25%, with Grayscale’s ETHE standing out at a significantly higher 2.5%. However, according to Wan’s insights, staking as much as 25% of the assets under management could potentially generate yields sufficient to completely cover these fees. The allure of fee-free or reduced cost Ethereum ETFs could attract institutional investors and, more importantly, resonate strongly with retail investors, as suggested by Wan.

Instead of the investor directly staking their assets, the ETF provider could provide indirect staking advantages to them. This means that although the investor doesn’t personally stake their holdings, they still reap the benefits derived from the staking rewards earned by the combined assets within the ETF.

As an analyst, I observed that even a relatively small staking return could prove significant. To put it into perspective, if issuers provide a 0% management fee along with approximately 1% yield, this setup would offer a compelling alternative to Bitcoin ETFs. Although a 1% yield might initially appear insignificant, I believe that the yield could serve as an attractive differentiator in this competitive landscape. It’s important to note that the current staking rate for Ether varies around 3.5% annually, depending on the specific staking method selected.

No matter which model is selected, ETF issuers would have enough flexibility to attract investors. Wan concluded that “enabling staking yield could be a game changer.”

As a crypto investor, I’ve observed that the absence of staking feature is hindering Ethereum-based Exchange Traded Funds (ETFs) from realizing their full potential. For institutional investors, who are often new to the world of cryptocurrency, Bitcoin might already seem like a novel asset. Ethereum, on the other hand, is even more unfamiliar territory. To draw in investments and stand out among competitors, ETH ETFs require a distinct advantage that’s straightforward for investors to grasp.

Investors still perceive Ethereum as a vague concept. Brokate said the significant adoption of spot BTC ETFs is related to the branding of Bitcoin among institutional investors. “Ethereum has lower brand awareness than Bitcoin. Bitcoin is the flag-bearer for the industry and has a simpler narrative.”

Permitting staking on Ethereum Exchange-Traded Funds (ETFs) could prove to be a potent force driving both institutional and individual adoption. A change in the leadership at the Securities and Exchange Commission (SEC) would represent a substantial stride for the cryptocurrency sector, especially for Ether’s price potential, since altcoin ETFs for digital assets such as Ripple (XRP) or Solana (SOL) are still awaiting approval.

A new SEC chair can’t change everything for staking

The Securities and Exchange Commission (SEC) is currently worried that staking functions similarly to an investment agreement, where earnings are not solely derived from the asset itself but through a systematic approach involving external actions by third parties. This understanding might necessitate staking platforms to adhere to securities laws, which encompass registration, disclosures, and safeguards for investors.

Although the crypto community is optimistic that a new SEC chairman might adopt a less stringent stance, Goforth advises not to expect an immediate change in regulation, regardless of whether a new, possibly crypto-aligned chairman takes office.

The SEC chairman generally establishes the Commission’s direction, yet doesn’t have the power to enact policy changes independently. In certain instances, the other commissioners have the ability to override the chair and initiate regulatory actions.

As a crypto investor, I’ve noticed that under the guidance of Gary Gensler at the SEC, there have been increased efforts to take legal action against various U.S. cryptocurrency firms providing staking services. This underscores the regulatory scrutiny being placed on our industry.

Instead of choosing to engage in a lengthy court dispute, some firms – such as the crypto exchange Kraken – elected to pay a $30 million penalty on February 9, 2023, to avoid further legal complications. Conversely, others, including US-based crypto exchange Coinbase, opted to bring their case before a judge instead.

According to Goforth, a SEC chair doesn’t have the power to single-handedly end ongoing cases. Instead, they must get a majority of the commissioners to agree, and then the Enforcement Division can dismiss the cases. However, Goforth suggested that it’s more likely for them to negotiate terms beneficial to the defendant’s company, thus resolving the case without going to court.

Additionally, Goforth pointed out that the Department of Justice retains the authority to initiate criminal proceedings related to securities laws, irrespective of the Securities and Exchange Commission’s position. In a contentious case involving a plaintiff, a court may intervene without the SEC’s approval. Moreover, even an individual who suffered financial losses by staking could potentially file a class-action lawsuit against an exchange.

As an analyst, I’d like to clarify that while the Securities and Exchange Commission (SEC) has the power to determine which actions reach the courtroom, their analysis is not necessarily binding on the judiciary. Ultimately, it’s up to a judge to decide what constitutes legality.

2024-11-14 01:10

Ether staking could boost struggling spot ETFs

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