The crypto market has seen increased volatility as of late due to the development of ETFs. Last week, Grayscale won a court case against the SEC concerning its ETF application. Although the news was initially positive for the markets, they dropped again when the SEC announced that the decision on all ETF applications was delayed until October.
The regulatory outlook for the crypto space is improving, though there are still some areas of concern. It is starting to feel inevitable that ETFs will be approved eventually. Moreover, there is now the hope that Bitcoin may not be the only crypto asset to gain approval. Cathie Wood’s ARK Invest and 21Shares have filed for a spot Ethereum ETF, which would be the first of its kind in the US.
Furthermore, there have been several applications for a futures-based Ether ETF, and Bloomberg reported in August that the SEC is likely to approve these products. The regulator’s reluctance to approve spot ETFs is likely due to the lack of a regulated crypto market of sufficient size to prevent market manipulation. Spot volumes have decreased this year, while futures and derivatives have held up better.
The approval of an ETF would likely enhance liquidity, creating a sort of chicken-and-egg problem. With demand for these products increasing, the SEC can’t resist approving them for much longer. The macroeconomic situation has also played a role in the crypto market’s performance this year. Interest rates have risen sharply, leading investors to move away from riskier assets like crypto.
Despite this, Bitcoin has still seen returns of over 55% in 2021. There is still the halvening event in April 2024 to look forward to, though it is too soon to predict its impact. For now, the news regarding ETFs is low-level desk-setting for what lies ahead. The market response to the Ethereum ETF application has been muted, though ETFs remain the only source of volatility in the crypto space.