Ten years after being approved for listing, a review of the road to the Ethereum ETF

On July 23rd, Beijing time, the U.S. SEC officially announced that Ethereum spot ETF products can be listed for trading, which is undoubtedly a historic and glorious moment for Ethereum.

Yesterday was also the tenth anniversary of Ethereum's official ICO financing. Along the way, Ethereum has continued to prove its value. After years of regulatory resistance and countless revised registration documents, the 19 b-4 form of the spot Ethereum ETF was approved in May this year, but it still needs its S-1 registration statement to take effect before it can officially start trading. Two months later, the spot Ethereum ETF finally entered the market and became the representative of cryptocurrency after Bitcoin.

The official approval for listing and trading also directly proves that Ethereum is worthy of the reputation of "the king of all chains". After ten years of hard work, we might as well re-understand Ethereum and explore the true value of this "world computer" that has been questioned and controversial, as well as the impact of the approval of the Ethereum spot ETF on the development of the entire crypto industry.

1. The past and present of Ethereum

Ethereum is a decentralized, open-source blockchain platform with smart contract capabilities. ETH is the platform's native cryptocurrency and the second-largest cryptocurrency by market capitalization after Bitcoin. At the time of writing, its market capitalization is approximately $420 billion.

Ethereum is a programmable blockchain network, and ETH is the token that drives this network. Bitcoin is the first killer application of blockchain, but due to the lack of programmability, it is difficult to extend more functions beyond the function of value storage. As an early researcher of Bitcoin, Vitalik Buterin hopes to support more decentralized applications based on blockchain network programming, so Ethereum came into being.

Major Events:

2013

At the end of 2013, Ethereum founder Vitalik Buterin released the first version of the Ethereum white paper. He gathered a group of developers who recognized the concept of Ethereum in the global cryptocurrency community and launched the project.

From December 2013 to January 2014, the focus of Ethereum's work was on how to launch the vision described by Vitalik in the Ethereum white paper. The team finally agreed that the Genesis pre-sale was a good idea. After a long and multi-faceted discussion, in order to create a suitable infrastructure and legal strategy, the team decided to postpone the Ethereum pre-sale originally scheduled for February 2014.

2014

February 2014 was a very important month for Ethereum, with rapid progress in all aspects of Ethereum: community growth, code writing, wiki content writing, business infrastructure and legal strategy. In this month, Vitalik first announced the Ethereum project at the Miami Bitcoin Conference and held the first "Ask Us Anything" event on Reddit, and the core development team became a world-class cryptocurrency team.

In July 2014, Ethereum conducted a 42-day pre-sale of ether, raising a total of 31,531 bitcoins, equivalent to $18.43 million based on the bitcoin price at the time, making it the second largest crowdfunding project at the time. The final number of ethers sold was 60,102,216.

2015

In March 2015, the team released a series of statements about the release of the Genesis block. In May, the team released the last test network (POC9), codenamed Olympic. In order to better test the network, during the Olympic phase, members who participated in the test network will receive Ethereum rewards from the team. There are many forms of rewards, mainly including test mining rewards and bug reporting rewards.

In July 2015, the official Ethereum network was released, which also marked the official operation of the Ethereum blockchain.

2016

On March 14, 2016 (Pi Day), Ethereum launched the Homestead phase. In this phase, Ethereum provided a graphical wallet, and the usability was greatly improved. Ethereum was no longer exclusive to developers, and ordinary users could also easily experience and use Ethereum.

2017

On March 1, 2017, the Enterprise Ethereum Alliance (EEA) was announced, aiming to create an enterprise-level blockchain solution and jointly develop industry standards.

In July 2017, hackers used unauthorized function calls to exploit vulnerabilities in Parity wallet 1.5 or higher, launched attacks and stole more than 150,000 ether from three multi-signature contracts, causing a loss of about 30 million US dollars based on the market value at the time. In November, due to code vulnerabilities accidentally triggered by "misoperations" by developers and users, all Parity multi-signature wallets that were repaired and created after July 20 were paralyzed, resulting in a total of 930,000 ether worth more than 154 million US dollars being frozen and locked, and have not been recovered to date.

2018

In September 2018, Bitcoin core developer Jeremy Rubin published an article titled "The Collapse of ETH is Inevitable" on TechCrunch, an American technology media, saying that even if the Ethereum network continues to exist, the value of ETH will inevitably return to zero. Ethereum founder Vitalik acknowledged the existence of the problem in his response: "If Ethereum does not change, Jeremy Rubin's remarks may be correct." This remark caused the price of ETH to fall for a time. At the same time, many Ethereum projects began to move to other public chains such as EOS and TRON, and some people worried that Ethereum would be replaced. Under the influence of ETH's price, Ethereum's total network computing power began to shrink. According to the computing power statistics of etherscan.io, the total network computing power of Ethereum fell by 20% from September to November, shrinking from nearly 300TH/s to 240TH/s.

On December 10, 2018, Vitalik declared on Twitter that in the future, blockchains that adopt sharding technology based on proof of stake (PoS) "will be thousands of times more efficient."

2019

In 2019, the Ethereum project carried out Constantinople hard fork, which is a code that stimulates the Ethereum network to change its core consensus mechanism algorithm. After this code is launched, Ethereum will face the so-called "Ice Age", and the difficulty of creating new blocks on the network will continue to increase, and eventually slow down to a complete stop. After the hard fork upgrade, the state of the Ethereum blockchain will be "permanently" changed.

2020

Beacon chain genesis block. The beacon chain requires 16,384 accounts storing 32 staked ether to ensure a safe launch. This happened on November 27, 2020, meaning the beacon chain started producing blocks on December 1, 2020. This is an important first step in realizing Ethereum’s vision.

2021

On April 15, Berlin upgrade was released. The Berlin upgrade optimized the fuel costs of certain Ethereum virtual machine operations and added support for multiple transaction types.

On August 5, the London upgrade introduced EIP-1559(opens in a new tab), which reformed the transaction fee market, while also making changes to the refund processing of gas fees and the Ice Age schedule.

October 27th, Aquila upgrade. The Aquila upgrade is the first planned beacon chain upgrade. It adds support for "sync committees" - support for light clients, and increases penalties for validator laziness and slashable behavior as it progresses toward a merge.

On December 9, the Arrow Glacier network upgrade delayed the difficulty bomb by several months. This was the only change introduced in this upgrade, which was similar in nature to the Muir Glacier upgrade. Similar changes were made to the Byzantium, Constantinople, and London network upgrades.

2022

On September 6, the Bellatrix upgrade was released. The Bellatrix upgrade is the second planned beacon chain upgrade that prepares the beacon chain for the merge. It increases the penalty for validators due to inactivity and slashable behavior to its full value.

On September 15, the Paris upgrade (merge) was launched. The Paris upgrade is a merge transition, and the main function of Ethereum ended the proof-of-work mining algorithm and related consensus logic and launched proof-of-stake.

2023

On April 12, the Shanghai upgrade introduced stake withdrawals to the execution layer. The Shanghai upgrade was carried out at the same time as the Capella upgrade, enabling blocks to accept withdrawal operations, so stakers can withdraw ether from the beacon chain to the execution layer.

2024

In March, the Cancun upgrade. Deneb is the upgrade name of the Ethereum consensus layer (CL), while Cancun refers to the update of the Ethereum execution layer (EL).

2. The peak and valley of ETH price

ETH's price of nearly $4,000 and its achievement of becoming the second largest cryptocurrency by market capitalization were not achieved in a day. From the Ethereum price trend chart below, we can intuitively see its glory and dark periods.

From the historical price trend chart of ETH, we can see that it has experienced several bull-bear conversion cycles, and this second-ranked cryptocurrency has also experienced a period of deep price decline, for which it has been questioned by the market.

In January 2018, ETH reached its first historical high, with the price of the currency being about $1,300. Just one year ago, ETH was only around $10, and the increase during this period was as high as 130 times.

But the subsequent bear market caused ETH to drop to around $100, a drop of more than 90%. This also made people doubt whether the Ethereum project really has huge value.

With the arrival of the historic bull market in the crypto market in 2021, ETH has continuously set new price records, rising to about $3,900 in May and around $4,900 in November. The highest point is about 49 times higher than the lowest point in the previous bear market.

However, with the advent of the bear market and the subsequent collapse of Terra and FTX, ETH fell from its highs again, falling to around $1,000. This period of silence did not improve until October 2023.

With the expected approval of the US Bitcoin spot ETF, the crypto market has recovered and ETH has also risen. However, ETH's performance in this cycle has disappointed investors. Not only did it fail to follow the footsteps of its big brother BTC to set new highs, but its growth rate was also far behind that of similar public chains. On the other hand, Solana has been reborn from the ashes, with the price rising from around $20 to $210, almost recovering the losses in the bear market.

Entering 2024, ETH has twice tested $4,000, but the upward trend is weak. However, this stalemate is expected to be broken with the approval of the Ethereum spot ETF.

3. Where is the price of Ethereum going?

The approval and launch of the Ethereum spot ETF indicates that the era of crypto integration into the mainstream has arrived.

From the market perspective, the most direct benefit of the ETF is ETH itself.

There are different views on the market expectations. Currently, the price of Ethereum has exceeded $3,500. Will it continue to rise after the spot ETF is approved and launched?

One view is that the price trend of the Bitcoin spot ETF after its approval can be used as a reference, with the BTC spot ETF seeing a small drop first and then a big rise.

The Bitcoin ETF was fully approved on January 10th, and in the lead-up to its launch, we saw a strong rise in BTC prices to $49,000, and then a 21% drop to $38,500 over the next 12 days. After that, traders saw the positive daily cumulative inflows of the 10 BTC spot ETFs (excluding Grayscale) and bought aggressively, and eventually BTC rose 90% to $73,000.

It is a view that the market falls first and then rises, and there are several arguments to support this view:

First, the price of ETH has not increased much in this round. The price of 3,500 USD is only about three times the bottom, while Bitcoin has increased four to five times after the spot ETF was approved. The industry generally believes that the price of ETH has been suppressed for too long in this round.

However, the possibility of the same price action happening again in ETH is clearly a risk, and when everyone expects this to happen, it often doesn’t actually happen, or at least the pullback should be much shallower.

The fundamental reason that supports the continuous rise in Ethereum prices is that the Ethereum spot ETF can attract a large amount of institutional capital inflows.

If a large amount of funds flow in, then the rule in investment that "good news coming true" is bad news will not hold true.

Spot Ethereum ETFs may not attract as much investor enthusiasm as spot Bitcoin ETFs For ETFs that target traditional institutions such as pension funds, endowment funds, and sovereign wealth funds, Ethereum is not popular. The reason may be that the institutional market holdings of Ethereum itself are smaller than Bitcoin. In the US market, ETH futures ETFs only account for about 5% of BTC futures ETF assets, which of course does not represent the possible demand for spot ETH ETFs.

Outside the United States, both Bitcoin and Ethereum exchange-traded products (ETPs) are listed, and the assets in Ethereum ETPs account for about 25%-30% of Bitcoin ETP assets. Compared with the asset share of ETFs, Grayscale Research predicts that the net inflow of US spot Ethereum ETFs will reach 25%-30% of the net inflow of spot Bitcoin ETFs; or about $3.5 billion to $4 billion in the first four months or so (accounting for 25%-30% of the net inflow of $13.7 billion in spot Bitcoin ETFs since January).

In general, the estimated demand for US spot Ethereum ETFs is about 25%-30% of the demand for spot Bitcoin ETFs. Ethereum's market value is about one-third of Bitcoin's market value. Based on market value, every $1 inflow into the spot Ethereum ETF may have a greater impact on the price. However, if the estimated inflow is one-third of the Bitcoin spot ETF, then in general, after the launch of the Ethereum spot ETF, its price trend and increase will be similar to that of Bitcoin.

However, when everyone expects the price of Ethereum to fall first and then rise, the price of Ethereum may not fall much, especially after the US election and the favorable macroeconomic expectations such as interest rate cuts, everyone will hold on to the currency and wait to sell.

There is also a view that Ethereum can no longer rise and the current price has basically reached its stage peak.

From a valuation perspective, Ethereum is arguably more valuable than Bitcoin was when the spot Bitcoin ETF launched in January. For example, one popular valuation metric is the MVRV z-score. This metric is based on the ratio of a token’s total market capitalization to its “realized value”: the market capitalization based on the price at which the token last moved on-chain (rather than the price at which it trades on an exchange). When the spot Bitcoin ETF launched in January, its MVRV z-score was relatively low, indicating that valuations were modest and that there could be more room for price increases. Since then, the crypto market has appreciated, and the MVRV ratios of both Bitcoin and Ethereum have increased. This could indicate that there is less room for price increases after the spot ETH ETF is approved to go live compared to when the U.S. spot Bitcoin ETF was approved in January.

4. The impact of Ethereum spot ETF approval on industry development

Why was the Ethereum spot ETF suddenly approved? One of the biggest reasons is that the two parties in the United States changed their attitudes towards encryption due to the election.

On May 22 this year, the U.S. House of Representatives passed the 21st Century Financial Innovation and Technology Act (“FIT21”). This is a landmark legislation for the crypto market. The bill aims to establish a comprehensive regulatory framework for digital assets. The bill has received bipartisan support, with 279 votes in favor (67%). This event also shows that cryptocurrencies are becoming increasingly important in the political landscape, and the attitudes of both parties towards cryptocurrencies have undoubtedly turned to support. The two parties quickly turned to support cryptocurrencies, and the most direct promotion was the SEC's approval of the Ethereum spot ETF.

A common understanding in the industry is that since the POS Ethereum has passed the spot ETF, the next SOL spot ETF also has a chance. After all, an institution has submitted an application for the SOL spot ETF to the SEC.

What will follow is the launch of more spot ETFs of cryptocurrencies. People will begin to expect the approval of spot ETFs such as AVAX, PEPE, and DOGE. Even if SOL has been designated as a security by the SEC, it is not important. The cryptocurrency circle relies on emotions and expected hype.

On the other hand, even if it is defined as a security, is it possible that the spot ETF will not be approved?

Whether Ethereum is a security has always been a hot topic in cryptocurrency legal discussions. In June of this year, the SEC concluded its investigation into Ethereum 2.0, which means that the SEC will not charge that ETH sales constitute securities transactions.

When the SEC approves the Ethereum spot ETF, it will have to explicitly acknowledge that non-pledged ETH is not a security. This will be a major policy move by the SEC, which has previously refused to recognize any asset other than Bitcoin as a non-security commodity.

This move will also immediately affect the SEC's cases against major cryptocurrency exchanges. If Ethereum is not considered a security, then many other tokens may also be considered commodities using similar logic, allowing cryptocurrency exchanges to win these legal cases.

After the launch of the Ethereum spot ETF, the crypto industry may usher in a big explosion of the altcoin season. The previous market cycle development pattern is generally that Bitcoin rises first, and then Ethereum rises. As the leader of the altcoins, Ethereum has led the altcoins to surge.

The logic behind this round of bull market is that after the Ethereum spot ETF is passed, more and more virtual currencies or mixed virtual currency ETFs will enter the market, and BlackRock and similar institutions will issue crypto index products, which will greatly promote the liquidity of the crypto market.

From the above, it can be seen that the launch of the Ethereum spot ETF is a top-down positive for crypto policy, and the policy benefits will bring about a comprehensive embrace of capital, which will not only embrace Ethereum, but perhaps also a large number of altcoins.  

Summarize

Looking back on the long road to building an Ethereum ETF, it can be said to be full of difficulties and obstacles. From being questioned by the market to being accepted by the US SEC and becoming one of the mainstream products in the traditional financial market, Ethereum's success has once again confirmed that the crypto market has an infinitely bright prospect and future.

The current stagnation of ETH prices is only a temporary market reaction, and the value of Ethereum will eventually be proven with the support of long-termism. But the real significance lies in the fact that the recognition of the US regulatory level will also leave a sign and seed of hope for other altcoins to follow the path of Bitcoin and Ethereum ETF.