Tuesday, May 21, 2024

ETH spot ETFs, political shift, surveillance, hard assets, hedge funds

“If the wind will not serve, take to the oars.” – Latin proverb ||

Hello everyone! What a week it’s been so far… and to think it’s only Tuesday!

Below, I embrace being totally wrong about the likelihood of ETH spot ETF approval, and also marvel at all the other political shifts we saw yesterday. I also look at how deep surveillance is no longer tiptoeing around our financial lives, it’s marching in. How few “hard” assets actually have a capped supply. And how many hedge funds have bought BTC spot ETFs.

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IN THIS NEWSLETTER:

• About those ETH ETFs…

• And there’s more going on

• Surveilling the surveillance

• Just how “hard” are hard assets?

• How many US hedge funds have BTC ETF holdings?

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WHAT I’M WATCHING:

About those ETH ETFs…

I don’t think I’ve ever been so happy to be wrong. It looks like we just might get ETH spot ETFs listed in the US after all.

After almost no signs of life on this front, suddenly yesterday credible sources said they were hearing there had been a mood shift. Apparently the SEC has asked issuers to file amended 19b-4s “on an accelerated basis” (by 10am ET today), suggesting that perhaps they won’t be rejected this week.

This does not mean approval is a given, but it would be really weird for the SEC to incur the extra time and admin cost if it is planning to reject. I realize that I’m doing a 180º here, but I don’t think the SEC is that disrespectful. It’s looking like I was wrong, and the SEC will approve at least some of the proposals this week: the deadline for VanEck’s is Thursday, and for ARK/21 Shares it falls on Friday.

(table via @JSeyff)

What changed, and why? To be honest, I don’t know, I’m still confused. On the surface, it looks like the SEC got some political pressure from a spooked White House. As you probably know, last week the Senate voted on a bill to repeal the SEC’s ludicrous SAB 121 rule that effectively prohibited listed banks from custodying crypto. The bill passed, the first standalone crypto bill to do so, with 11 Democrat senators voting in favour. It could be that these “defections” sent a loud message to President Biden that continuing to supporting the securities regulator in in its misguided attempt to extend its powers was perhaps not such a winning strategy after all.

[As an aside, referring to the Democrat votes as “defections” is part of the problem with the political landscape in the US today – it assumes that elected representatives shouldn’t vote for what they think is right, they should vote for their party no matter what. This facilitates the corporate capture of senior leadership and thus the whole party, which is not a healthy version of democracy. But I digress!]

What I’m especially confused about is that the Democratic party looked weak even before yesterday’s abrupt turn – surely this obvious lack of conviction will make it look even weaker? I mean, either the White House was pandering before, or it’s pandering now. Of course, it’s possible that the president did some more homework over the weekend and come Monday understood much more than he did on Friday. Although, let’s face it, that doesn’t feel likely. It’s all bewilderingly strange.

But very welcome! The SEC should approve spot ETH ETFs. The token should not be designated a security, nor should staking contracts with pure reward distribution (there are some cases where third party staking is handled more like a fund, that’s a more complicated legal situation). And ETH spot ETFs listed in the US would broaden diversification opportunities for all investors, while supporting a growing global ecosystem that will help transform the centralized and gated nature of modern finance.

It's worth pointing out that approval from the SEC this week does not mean the ETH spot ETFs will be listing soon. This week is just about the 19b-4 forms. The funds can’t list until the S-1s are approved, and that can take days, weeks or even months. But it’s extremely unlikely that the SEC would approve the former and not the latter (it would signal even more inconsistency and chaos), so once the issuers get the first OK, it’s a question of “when” not “if”.

The market was not expecting this, as we can see by the price reaction when the rumours started to circulate.

(chart via TradingView)

And there’s more going on