Despite the heated discussion and widespread speculation, the potential approval of a spot ether ETF is approaching. 

With the deadline for decision on VanEck spot ether ETF set for May 23rd, more debates center not only on the approval itself but also on the ether price action and its impacts on the altcoin market.

What Is A Spot Ether ETF?

A spot ether exchange-traded fund (ETF) is a financial instrument designed to offer investors exposure to ether (ETH), the native token on the Ethereum blockchain, without requiring them to own the cryptocurrency directly. 

A spot ether ETF holds actual ether tokens in the underlying portfolio and aims to track the price of ether as closely as possible. 

When investors buy shares in a spot ether ETF, they indirectly own a portion of the fund’s ether holdings.

Previously, mainstream opinion in the crypto community was pessimistic about the approval of spot ether ETF. 

However, things ushered in a turning point when the U.S. Securities and Exchange Commission (SEC) asked ether exchange-traded fund exchanges to update 19b-4 filings ahead of a key deadline this week. 

According to Coindesk, exchanges are being asked to update 19b-4 filings accelerated by the U.S. SEC, suggesting they may be moving to approve these applications ahead of a key deadline.

The 19b-4 Filing And S-1 Document

The potential approvals of the 19b-4 filing and S-1 document are worth particular attention, which are critical components for the authorization of spot ether ETF. 

The 19b-4 filing is used by covered self-regulatory organizations (SROs) to record a rule change with the SEC. Many stock exchanges and financial regulatory bodies are SROs, and so their bylaws, rules, and regulations must be filed with the SEC for public recordkeeping.

In the meantime, the S-1 document is also required before the ETF product can begin trading. The document requires companies to provide information on the planned use of capital proceeds, detail the current business model and competition, and provide a brief prospectus of the planned security itself, offering price methodology and any dilution that will occur to other listed securities.

In a nutshell, the odds for the approval of a spot ether ETF increased as the SEC could take a more favorable stance towards the spot ether ETF application. Let's wait and see.

Source: https://x.com/EricBalchunas/status/1792636523050906102

Significance Of Spot Ether ETF

The spot ether ETF is a milestone for the Ethereum ecosystem as well as the whole crypto industry. It offers traditional investors a more straightforward and transparent approach to investing in the future of cryptocurrency and opens the gateway for large funds to enter the crypto industry.

The spot BTC ETF is a good example of such a scenario. As the spot BTC ETF was approved in Jan 2024, BTC price has surged from $45k to $70k and a total of $13.17B funds have inflowed to spot BTC ETF.

Source: https://sosovalue.xyz/assets/etf/us-btc-spot

The Potential Bullish Gems

The potential spot ether ETF approval would be a catalyst of the soaring altcoin market. Among thousands of altcoins, several major players in the Ethereum ecosystem may benefit the most.

DeFi Bluechips

DeFi is one of the major narratives in the last bull cycle. Till now, the application of DeFi has been popularized in every aspect of Ethereum and other blockchains. 

DEXes, lending protocols, and stablecoins are becoming indispensable for the blockchain ecosystem. $UNI, $AAVE, $CRV, and $MKR are the most well-known representatives in this segmentation.

Infrastructures

Ethereum has the most well-built infrastructures compared with other blockchains. The growing adoption of Ethereum would directly catalyze the booming of infrastructures on it. Notable candidates include $ENS, $SAFE, and $LINK.

Layer2

Ethereum has established itself as a cornerstone of the cryptocurrency industry. However, it faces significant limitations on the mainnet, like scalability and interoperability. 

Layer 2 solutions are designed to enhance Ethereum's scalability and reduce congestion, while backed by the security of Ethereum mainnet. $ARB, $OP, $METIS and $STRK are major candidates in the layer2 narrative. 

Arbitrum ($ARB) has captured the largest TVL in layer2s and Optimism ($OP) has expanded its superchains alliance since day one. Metis ($METIS) is the leading layer2 that has made significant progress in the decentralization of sequencers. Unlike op-rollup layer2s, Starknet ($STRK) utilizes the zk-rollup mechanism to scale Ethereum.

LSD/LRT And Their Legos

Ethereum Liquid staking derivatives (LSDs) are tokens that represent staked ethers. Lido ($LDO), SSV network ($SSV), and Rocketpool ($RPL) are representatives in the LSD narrative. 

Liquid restaking derivatives (LRTs) are financial legos on the staked ethers. Notable projects include Etherfi (ETHFI), Renzo ($REZ), and Altlayer ($ALT).

In the meantime, yield protocols based on LSDs and LRTs stand out with juicy APYs. Pendle ($PENDLE) offers both fixed yields for sound investors and variable yields for aggressive players.

Source: https://www.pendle.finance/

Large Ether Holding Protocols

Legacy protocols have accumulated thousands of ethers during the ICO mania. With the raised ether sitting in the DAO treasury for years, the surge of ether price would directly increase the DAO treasury. GnosisDAO ($GNO) and Golem ($GLM) are the typical protocols with large ether holdings.

Source: https://etherscan.io

In parallel, CeDeFi protocols attract a large amount of ether in their TVLs and have exposure to the ether open interest. 

For example. Ethena ($ENA) and Bouncebit ($BB) have been the most successful CeDeFi protocols so far.

Memecoins

Memecoins have become the indicator of the prosperity of a blockchain. Almost every blockchain now has its meme coins to boost market attention and on-chain engagement. 

On Ethereum, Pepe ($PEPE) has the most notable IP and largest market cap compared with its competitors.

Summary

In summary, a spot ether ETF is more likely to be approved given the SEC's favorable stance and should increase the liquidity of the ether market by providing more traders. 

It may bridge the legacy funds to the brand-new industry and thus promote the mass adoption of cryptocurrency.

In the meantime, it's also a big day for crypto-native traders. In addition to investing in ether directly, crypto-native traders can trade altcoins on Ethereum to leverage the impacts of the spot ether ETF.