Crypto Wins In Washington, Democrats Pivot Away From Anti-Crypto Stance As SEC Pulls A 180° On Ether ETF
It has been a very important week for crypto assets. The week began with a surprising development with the numerous spot Ether ETF applications that are currently being considered by the SEC. The general consensus was that the SEC would not approve a spot Ether ETF. Bloomberg’s ETF analyst James Seyffart, who is known within crypto circles as one of the two “ETF bros”, along with Eric Balchunas, had placed the odds of the SEC approving the Ether ETFs at 25% and betting markets had the probability set around 12% as of Monday morning. It appears that the SEC had a sudden change of heart at the 11th hour. We first learned about this unexpected development when James Seyffart reported that issuers had been contacted by the SEC to get their documentation in order (such as the 19b-4’s) on Monday, three days before the final deadline for the SEC’s decision. Until this news, there had been a complete lack of communication between the SEC and hopeful Ether ETF issuers, which is why there had been such low expectations for the prospects of an Ether spot ETF. This lack of communication contrasted with the example of the run-up to the launch of the spot Bitcoin ETFs, in which there had been weeks of back and forth between issuers and the SEC.
Image 1. Bloomberg’s Seyffart helped break the news that the SEC may unexpectedly approve spot Ether ETFs.
Seyffart and Balchunas can be excused for their lack of optimism about the Ether ETF approval because all signs had been pointing to a denial or delay. Apart from the radio silence Ether ETF issuers had been reporting, the SEC had been on a warpath against crypto firms, hinting that they may label Ether a security and taking every opportunity to disparage this nascent asset class.
So why the sudden change of heart? It appears that there may be politics at play here. As we reported a few weeks ago, the question of crypto assets had suddenly become a very partisan issue in Washington. On the one side, there is Elizabeth Warren who had publicly declared that she was “building an anti-crypto army” early last year and had been doing everything within her power to hamstring the development of the crypto industry in the US. The SEC, under Garry Gensler, appears to have been part of this anti-crypto army.
Image 2. Elizabeth Warren has led the anti-crypto charge in Washington
The political landscape changed when Donald Trump, at an event held for his NFT holders on May 8th, said “If you’re in favor of crypto, you better vote Trump”. He followed up with this pro-crypto stance by declaring that he is building a “crypto army” and that his campaign will be the first mainstream presidential candidate to accept crypto donations.
This opportunistic support of crypto appears to have rattled the Democratic party, causing them to pivot on the question of crypto in the United States. There seems to be very little political upside to being anti-crypto, as it inflames a small but growing percentage of single-issue voters, many of whom live in swing States. The fact that crypto culture is very young, very online, and obsessed with memes has also helped paint the Democrats (especially Elizabeth Warren) as out-of-touch luddites who can’t get with the times.
All of this appears to have reached a tipping point over the past week after SAB 121, a pro-crypto legislation that reverses the SEC’s Staff Accounting Bulletin, which made it practically impossible for financial firms to hold crypto on their customer’s behalf, passed both the Senate and the House of Representatives on a bipartisan basis. As recently as last week, the White House had vowed to veto SAB 121, but over the weekend it appears that the Democratic party decided to re-think this policy and their entire approach to crypto.
Then, this week, we had a house vote on the Financial Innovation and Technology for the 21st Century Act (FIT 21.) The FIT 21 bill, crafted by House Republicans, aims to establish a comprehensive regulatory framework for crypto, favouring industry-friendly policies. It proposes classifying most crypto assets on decentralized blockchains as commodities under the CFTC's oversight, minimizing SEC regulation. The bill also seeks to modify the Howey test for securities, potentially reducing SEC authority over crypto assets. Allowing crypto to be regulated by the light-touch CFTC would be a huge win for the industry. The bill passed with 71 democrats voting in favour, including Nancy Pelosi. Before the vote, the White House released a statement saying it opposes FIT21 but says it's 'eager to work with Congress' on a balanced framework. This statement was a big departure from the administration’s past hardline anti-crypto rhetoric. The bill still needs to pass a Senate vote, and it is expected to change as both parties negotiate amendments.
This strong shift in Democratic positioning is likely a combination of factors. The anti-crypto policy did not have broad support in the party. Many Democrats in the House of Representatives have been far more open to crypto as a whole and haven’t sided with the administration's hostile position. Now, with clear support for crypto from the Trump campaign, an anti-crypto policy is beginning to look like a strategic mistake. More importantly, the crypto lobbying group has a growing voice with strong financial backing. Pro-crypto super PACs have been very active in recent years and likely caught the attention of political fundraising campaigns. Mark Hays, senior policy analyst on fintech with Americans for Financial Reform, suggested that the recent change in tone “ is not about supporting crypto, this is about trying to navigate the threat of promises from super PACs.”
Figure 1. Ether had a massive breakout from its consolidation.
Crypto assets responded to these developments with a strong rally, especially Ether, which rose approximately 20% on the news. This move, which caused Ether to break out of the large triangle it had been forming as the price action drifted sideways in a tighter and tighter consolidation (which we pointed out last week), marks one of the biggest one-day dollar gains in Ether’s history. For context, consider the fact that Monday’s jump added approximately 80 billion to the market capitalization of Ether, which is more than the entire market capitalization of Solana.
Figure 2. The ratio is attempting to regain the bottom level of its range.
The ETH/BTC ratio, which had been slowly and painfully dribbling lower for the past few months, jumped from approximately 0.045 to 0.056. This sudden move brings much-needed relief to Ether holders, who had been underperforming Bitcoin and many altcoins for months. Bitcoin also got its fair share of gains on Monday as it rose from approximately 66K all the way to the top of its trading range, around $72K, before pulling back.
Figure 3. Bitcoin continues to struggle with its $72k level of resistance.
Looking ahead, if the spot Ether ETFs do get approved, it is expected that actual trading in these shares will not begin for many weeks or even months. This could create a “buy the rumour” trade as investors get positioned for the launch of these ETFs (similar to the price action of Bitcoin in the run-up to its spot ETFs).
A rally in Ether, especially one in which it outperforms most other crypto assets, could signal that this crypto cycle may, in fact, be similar to those in the past, where Bitcoin starts the bull market off by outperforming, hands the baton to Ether for some time and then altcoins have their day in the sun.
Latest Crypto Developments
In this section, we highlight the latest developments that may be significant in either the price action or the trajectory of the crypto space overall.
Lawmakers Urge SEC Chair Gensler to Approve Spot Ethereum ETFs
A bipartisan group of lawmakers is pressing SEC Chair Gary Gensler to approve spot Ethereum ETFs in a letter sent to the chairman. The lawmakers argue that approving these ETFs would align with the recent approval of spot Bitcoin ETFs.
Trump Campaign to Accept Crypto Donations
Donald Trump's campaign has announced it will accept crypto donations, including Dogecoin and Shiba Inu. This move is part of a broader effort by the Trump campaign to embrace crypto assets and attract support from the crypto community.
Uniswap Labs Responds to SEC's Wells Notice
Uniswap Labs has responded to the SEC's Wells Notice, calling the legal case against it weak and wrong. The company argues that its decentralized protocol does not fall under the SEC's regulatory purview and plans to contest the charges.
New York Attorney General and Genesis Secure $2 Billion Settlement
The New York Attorney General's office and Genesis have secured a $2 billion settlement following a judge's approval. The settlement resolves claims related to alleged misleading of investors about the company's financial health.
Vitalik Buterin Addresses Threats to Ethereum's Decentralization
In a new blog post, Ethereum co-founder Vitalik Buterin discusses potential threats to Ethereum's decentralization. He emphasizes the importance of maintaining a decentralized network and proposes solutions to mitigate these risks.
Market Returns
That's Some Good Content!
Recommended articles, podcasts, and other content from this week:
Unchained podcast - Is US Politics Driving the ETH ETF Approval?
The Breakdown podcast - A Presidential Campaign Crypto Milestone
Galaxy Brains podcast - SEC Unexpectedly Expedites ETH ETF w/ Eric Balchunas
American Prospect article - Pelosi May Back Industry-Friendly House Crypto Bill
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