Ethereum ETF staking: Novogratz sees shift in SEC’s stance in 2 years

As a seasoned crypto investor with several years of experience in this dynamic market, I’m both encouraged and cautious about Mike Novogratz’s expectation for US ETH ETF staking within the next 1-2 years. The potential yield benefits are undeniable, but we must not overlook the regulatory challenges and Ethereum concentration risks that come with it.

Mike Novogratz of Galaxy Digital expressed optimism that staking for ETH-backed US Spot Exchange-Traded Funds (ETFs) will become a reality, despite present regulatory obstacles from the Securities and Exchange Commission (SEC).

During an interview at Consensus 2024, Novogratz expressed his preference for earning a return over not having one. Regarding the timeline for US-listed Ethereum ETFs, he was asked when this might occur, and he responded:

As an analyst, I believe that the Ethereum Exchange-Traded Funds (ETFs) which currently do not support staking will likely adjust their rules within the next 12 to 24 months to enable this feature.

As a crypto investor following the latest developments in the ETF space, I’m excited about Eric Balchunas’ estimation from Bloomberg that we might see the approval and launch of spot Ethereum ETFs by June or July this year. If that holds true, then Mike Novogratz’s prediction for Ethereum staking to become a reality would be around mid-2025 or mid-2026.

SEC’s staking stance and risks

The Securities and Exchange Commission (SEC) in the United States has consistently been against cryptocurrency staking. Last year, Kraken reached a $30 million settlement with the SEC and subsequently closed down its crypto staking services within the US.

Prior to the Security and Exchange Commission (SEC) granting approval on May 23rd, Ethereum ETF applicants in the US had eliminated the ‘staking provisions’ from their 19b-4 forms. The removal of these provisions suggested that they may have posed challenges for SEC approval.

Additionally, concerns have arisen regarding how staking for US-listed Ethereum spot ETFs might heighten Ethereum’s risk of centralization.

Based on S&P Global’s findings, the staking of Ethereum Exchange-Traded Funds (ETFs) could bring about both advantages and disadvantages. On the upside, according to the report, are the following points:

As a financial analyst, I would suggest that the involvement of institutional custodians in the Lido decentralized staking platform could help dispersed the current high concentration. This means that by having more entities managing and securing the staked assets, we can minimize the risk associated with over-reliance on a single entity or group.

Although Lido lost some market share in Ethereum staking, it remained the dominant player with a 28% share, trailed closely by Coinbase at 13%, and Ether.Fi with a 3% share among the leading contenders.

On the negative, the S&P Global warned that,

‘It may also introduce new concentration risk, particularly if a single entity is chosen to stake the bulk of ETH included in these ETFs’

Based on a recent Bloomberg article, it was revealed that Hong Kong intended to grant approval for a spot Ethereum ETF that supports staking.

Market experts predict that the unannounced schedule for this plan may still boost the popularity of Hong Kong’s Ethereum spot ETFs, which had a lackluster start in late April.

The future action of the American regulatory body regarding Ethereum’s staking and its consequences for the network’s security is yet to be determined, mirroring Hong Kong’s recent shift in stance.

2024-05-31 14:15

SEC’s staking stance and risks

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