BlackRock’s Ethereum ETF Filing Has Big Implications For Investors

Overview

BlackRock, the world’s largest asset manager, just filed an application to list an ETF that will hold ether, the native asset for the Ethereum blockchain, and directly track its underlying spot price. Ether immediately surged on the news, jumping almost 10% from $1,880 to briefly over $2,100 before starting to give back some of the gains.

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Key Background

The immediate surge in price mirrors a rally that affected bitcoin in June when BlackRock similarly filed an application to list a spot bitcoin ETF. ETFs stand for exchange-traded products, and they offer a convenient way for investors to buy exposure to an asset without having to directly procure it. This property is especially appealing to crypto investors, many of which are turned off by the technological and security challenges that come with buying the actual asset.

In the case of bitcoin, it surged more than 20% in June, as many industry watchers felt that an asset manager with the clout and reputation of BlackRock would not file an application without an expectation of success. It is worth noting that to date no spot crypto application has ever been approved by the Securities and Exchange Commission for any asset (and it has not been approved since despite growing optimism). As a result, while bitcoin is up 45% since that date, it has not been a smooth ride. In fact, the asset nearly gave up all of its gains in the fall before rallying once again in October.

Outlook and Implications

The first thing to remember is that a BlackRock spot ether ETF is months away at the earliest and there is no guarantee that it will ever list. The SEC has up to 240 days to decide whether or not to approve a product, which could push any potential start date all the way back until next fall. In addition, it is important to note a key distinction between the regulatory statuses of bitcoin and ether that could cause additional delays.

While virtually every interested party, including the SEC is in agreement that bitcoin is not a security, and it does not fall under its jurisdiction, ether’s outlook is cloudier. In fact, SEC Chairman Gary Gensler has prevaricated on the subject multiple times, including during a high-profile showdown with the Chairman of the House Financial Services Committee Patrick McHenry (R-NC) over whether he believes ether to be a security. Notably, the token was not cited as an unregistered security in any of the lawsuits brought by the SEC against exchanges like Coinbase or Binance, and the industry is still trying to read the tea leaves of this omission.

While this distinction may not directly decide whether or not ether can be wrapped in an ETF, such a debate could still slow down the process. If exchanges need to delist the token, it could harm global liquidity and oversight, and make the market more vulnerable. It is also likely that the SEC would want to see how a spot bitcoin ETF trades before approving products that track other assets. All of this means that after a week or two of excitement, which could be sustained if/when copycat applications suddenly come out of the woodwork, ether’s price is likely to continue along the same trajectory that it has been on, which has been sluggish.

Let’s explore in more detail.

Ethereum occupies a unique place in the world of crypto, as it straddles the line between being a safe haven/store of value token and a higher beta/more volatile play on the crypto industry on the whole. This means that its value proposition combines properties as a safe haven while also having qualities of a growth asset. This hybrid model has been borne out in recent years as ether has outperformed bitcoin but trailed high-profile alternative tokens such as Solana’s SOL or Binance’s BNB.

However, the script flipped in 2023 as excitement over a spot bitcoin ETF has grown. Now investors see bitcoin as the best way to inch back into crypto after a brutal 2022. Ethereum has lagged significantly behind BTC in terms of price and furthermore core fundamentals such as network usage and active participants has not moved much in a year.

All of this means that the outlook for ether was lackluster in the coming months before the application. Although it is…