Ethereum spot ETFs are next

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The new bit­coin spot exchange-trad­ed funds mark the brink of an era that will see tril­lions pour into tokenization. 

The moment Black­Rock filed its iShares Bit­coin Trust appli­ca­tion with the US Secu­ri­ties and Exchange Com­mis­sion, it was obvi­ous it would get approved. The evi­dence was on page 36 of the 111-page fil­ing, which ref­er­ences the “sur­veil­lance-shar­ing agree­ment” between NASDAQ and a US BTC Spot Mar­ket Plat­form (read: Coin­base). Add to that BlackRock’s 575–1 ETF appli­ca­tion approval record, and the writ­ing was on the wall.

But the SEC was also explic­it about its real con­cerns with cryp­to mar­ket manip­u­la­tion. Manip­u­la­tion relat­ed to bit­coin prices was cit­ed in most, if not all, pre­vi­ous ETF rejec­tions. The SEC isn’t con­vinced Coin­base and oth­er cryp­to exchanges can be trust­ed to “pre­vent fraud­u­lent and manip­u­la­tive acts and practices.” 

After the ETF approval, we may not be expe­ri­enc­ing the record flows of bil­lions of dol­lars in its after­math that reporters pre­dict­ed. But, we are expe­ri­enc­ing “crypto’s top ene­my” and arguably the largest oppo­nent to blockchain adop­tion in the US final­ly acqui­esc­ing to its place in the market. 

Incom­ing will be an immi­nent approval of an Ethereum spot exchange-trad­ed fund with par­al­lels to the legal prece­dents set by the bit­coin spot ETF.

I’ve been in the tok­eniza­tion space since 2017. And I’ve been say­ing since then that every finan­cial asset will one day be on a blockchain. Lar­ry Fink, the CEO of Black­Rock, final­ly agrees. ETFs, he says, are just a mere step­ping stone to “the tech­no­log­i­cal rev­o­lu­tion in finan­cial mar­kets” that includes “the tok­eniza­tion of every finan­cial asset.” Fink’s future vision looks some­thing like this: “Every bond will have its own CUSIP, it will be on one gen­er­al ledger” and “this elim­i­nates all cor­rup­tion, by hav­ing a tok­enized system.” 

His­tor­i­cal­ly, mar­kets have been plagued with integri­ty issues. Trans­ac­tions require trust that the oth­er par­ty will uphold their end of the bar­gain. Finan­cial insti­tu­tions, both com­mer­cial and reg­u­la­to­ry, have blos­somed as a way to medi­ate this. Yet, all this does is require par­tic­i­pants to place their trust in cen­tral­ized third-par­ties whose oper­a­tions are opaque and, quite frankly, not immune to corruption. 

Blockchain tech­nol­o­gy reduces this reliance on third par­ties and the risks it brings. It’s opti­mistic for Fink to say blockchain can elim­i­nate all illic­it behav­ior — crim­i­nals will always find a way to be crim­i­nals. But blockchain can offer more trans­par­ent, trace­able trans­ac­tions in real-time that pre­vents fraud and lets reg­u­la­tors track illic­it behav­ior much more eas­i­ly and effectively.

Read more from our opin­ion sec­tion: Bit­coin ETFs are not crypto’s fin­ish line

More indus­try play­ers like Fink, and even more reg­u­la­tors, are now start­ing to see the real, tan­gi­ble ben­e­fits of blockchains. That’s why I pre­dict that it will be hard for the SEC to jus­ti­fy not approv­ing many oth­er prod­ucts once it approves the Ethereum spot ETF. We’ll have NFT ETFs, DeFi ETFs and even ETFs for the top tok­enized real-world assets.

Insti­tu­tions with tril­lions in cap­i­tal will final­ly be able to access tokens via reg­u­lat­ed vehi­cles on venues with approved coun­ter­par­ties. They’ll push for blockchain in use cas­es of greater insti­tu­tion­al ben­e­fit, like the tok­enized bonds we’ve seen issued in Europe or the tok­enized secu­ri­ties now legal through­out nations in APAC. Lega­cy finance in the US will final­ly open to tokenization. 

But this tok­eniza­tion won’t be on one pub­lic ledger as Fink hopes. While it would be great for Black­Rock if every­thing hap­pened on Ethereum — this would dri­ve val­ue to its future Ethereum spot ETF — it’s just not what reg­u­la­tors or mar­kets want.

Reg­u­la­tors and insti­tu­tions have repeat­ed­ly indi­cat­ed a pref­er­ence for pub­lic per­mis­sioned net­works or pri­vate per­mis­sioned networks.

In a report by EY Parthenon, 60% of insti­tu­tions said they pre­ferred a pub­lic per­mis­sioned net­work for asset tok­eniza­tion. Like­wise, pub­lic per­mis­sioned net­works were of inter­est to reg­u­la­tors inter­viewed for a report by the Glob­al Finan­cial Mar­kets Asso­ci­a­tion and Boston Con­sult­ing Group. 

Per­mis­sioned net­works will be the net­works of choice for many. They’re either com­pa­ra­ble to exist­ing infra­struc­ture in cap­i­tal mar­kets (pri­vate per­mis­sioned), or come with frame­works for reg­u­la­to­ry and insti­tu­tion­al risk-man­age­ment and tools to enable know-your-cus­tomer/AML com­pli­ance (pub­lic permissioned). 

Is the SEC’s approval of the bit­coin spot ETFs exciting? 

Yes. 

Is it giv­ing the green­light for insti­tu­tion­al cap­i­tal to pour into cryp­to and tokenization? 

Yes. 

But, we’re only in the first inning of this rev­o­lu­tion. We haven’t seen any­thing yet. 


Graeme Moore is the Head of Tok­eniza­tion at the Poly­mesh Asso­ci­a­tion, a not-for-prof­it ded­i­cat­ed to the growth of the Poly­mesh blockchain ecosys­tem. He is also the author of B is for Bit­coin, the first ever ABC book about Bit­coin. Pri­or to Poly­mesh, Graeme was the first employ­ee at Poly­math; the cre­ative direc­tor at Spar­tan Race; and an asso­ciate at Canada’s largest inde­pen­dent invest­ment advi­so­ry firm.


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