Regulators have backed off Ether (for now), which many observers say could give the asset room to grow.

On June 19, 2024, the United States Securities and Exchange Commission (SEC) officially closed its investigation into whether Ether (ETH $3,478) should be classified as a security.

Consensys lawyer Laura Brookover said that crypto markets will see “no more protestations from the SEC that ETH is a security.”

However, Carol Goforth, a professor at the University of Arkansas School of Law specializing in business associations and securities regulation, clarified to Cointelegraph that “all the decision means is that at this time, the SEC will not be continuing its investigation. This is not a final determination.”

Consensys believes the SEC’s withdrawal from its investigation of Ethereum has removed a significant burden that threatened the network’s survival.

The “momentous” SEC retreat has settled the dust from negative regulatory concerns regarding ETH as a security, but how will ETH’s price react to having a clearer path? The SEC investigation also affected cryptocurrencies with similar attributes to Ether, so which altcoins could benefit from Ethereum’s liberation? 

Observers say Ether price is set to surge

The Ether price has been relatively stable since the SEC stopped its investigation, following a horizontal pattern that has persisted since the news of spot Ether ETF approval on May 23.

Chart

Horizontal price action since spot Ether ETF approval on May 23, 2024. Source: CoinMarketCap

At publishing time, Ether is down 2%. This has led some traders to wonder whether ETH will surge and if the altcoin market will follow. 

Other market observers say there is great potential for future growth.

Conor O’Neill, community lead and partner of investment analytics company Blockcircle, told Cointelegraph that “the major regulatory barrier” for Ethereum has been removed and that it “sets a significant precedent for regulators worldwide.”

The SEC shutting down the investigation “removes a considerable element of risk and uncertainty for any investors.” O’Neill believes the price of Ethereum is set to surge:

It is difficult to see any scenario, barring a catastrophic world event, that would prevent the Ethereum price from increasing significantly from its current level.

There are also other elements to consider.

The expected launch of spot Ether exchange-traded funds on July 2 will undoubtedly impact the price of ETH. As was the case when the U.S.-based spot Bitcoin (BTC $63,672) ETFs launched in January, traditional markets are expected to begin injecting capital into the ETFs, producing a higher demand for ETH and boosting its price.

O’Neill explained that the ETH ETF “is highly likely to have a long-term positive impact on the price of Ethereum.”

In the short term, “we might see a sell-the-news event similar to what we saw when the Bitcoin ETFs were approved.” He said that a short-term pullback should be expected, as some of this news will be priced in when the ETF trading commences.

Although the ETH ETF approval is positive news for the crypto markets, Blockcircle’s partner highlighted that the SEC had approved Ether ETFs under certain conditions.

ETF issuers cannot offer an Ether ETF with staking. Goforth explained that this is because “the SEC has alleged that staking itself involves an investment contract,” removing the possibility of providing extra gains to its holders.

O’Neill believes that if the SEC maintains tight regulatory control over digital assets with total opposition to staking, it could harm ETH’s long-term performance as an institutional asset and, therefore, negatively affect its price.

Some have also questioned whether Grayscale outflows, as with the Bitcoin ETF, could affect the Ether price after ETFs launch.Its Grayscale Ethereum Trust, with a valuation over $10 billion, could begin to see major outflows after ETH ETFs launch. This could affect ETH’s price as it did with Bitcoin.

O’Neill explained that Grayscale outflows significantly outpaced inflows to the new Bitcoin ETFs because of its higher management fees.

However, he highlighted that the Grayscale fee for its Ether trust has been reduced to levels comparable to other Ether ETF providers.

In his opinion, this indicates that Grayscale doesn’t want a repeat of the Bitcoin ETF launch and believes that the amount of ETH held by Grayscale “is likely to increase exponentially with the launch of the ETF.”

ETH

Grayscale Ethereum Trust performance view. Source: Blockcircle

O’Neill predicted that ETH will “follow a similar trajectory to Bitcoin’s price, with a dip followed by an exponential rise.” 

However, he noted one central distinction between the Ether ETF and the Bitcoin ETF: the surprise effect of the sudden approval.

Given that many market commentators did not expect Ethereum to be approved, there could be a reason to suggest that the Ethereum price is suppressed. This would advocate a bullish scenario for Ethereum’s price, where it would outperform Bitcoin.

The price of Ether has a clear path ahead as one of its major opposing fundamental arguments against it has been removed. If ETH surges, will the altcoins follow?

Altcoin prices can benefit indirectly

When Bitcoin price surges, it creates a lift-up effect for the entire crypto market. Similarly, this occurs in the altcoin market when Ether surges.

So, which altcoins could benefit from following the latest news?

The SEC halting its investigation may be relevant to other altcoins the agency has accused of being securities.

The SEC has opened cases against crypto exchanges Binance and Coinbase for a variety of securities law violations. The SEC has named several altcoins as securities, including Solana’s

(SOL $130), Cardano’s (ADA $0.38) and Polygon’s (MATIC $0.5713).

O’Neill believes that projects such as Aave or Chainlink from the decentralized finance (DeFi) sector or layer-2 chains such as Arbitrum, Optimism or Base could benefit from the SEC’s retreat. 

However, O’Neill remarked that many offer staking capabilities and are not yet entirely free from SEC scrutiny.

The SEC’s stance could change drastically as the U.S. presidential election approaches, with Donald Trump advocating for pro-crypto measures.

SEC Chair Gary Gensler’s future would be uncertain, as would the regulatory agency’s opposition to staking. Some even speculate that altcoin ETFs could hit the market.

The sudden approval of a spot Ether ETFs, the growing number of ETF issuers, and the withdrawal of the SEC’s investigation signal a potential shift in the SEC’s approach. These changes mark a pivotal moment for Ethereum and the broader cryptocurrency market.


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