Top 5 Reasons Why SEC's Approval Shocks the Crypto Community

The landmark acceptance of eight Spot Ethereum ETFs by the United States. The Securities and Exchange Commission (SEC) represents a significant milestone in the evolution of cryptocurrency investment products. Influenced by various circumstances, the decision demonstrates a complex approach to regulation and market dynamics. Here are the top five reasons the SEC approved the Spot Ethereum ETF.

1. Correlation Between Ethereum Spot And Futures Market

The SEC's judgment was heavily influenced by the high correlation between the Ethereum spot market and CME Ethereum futures. The SEC's investigation indicates that the CME ether futures market has continuously shown a strong association with certain spot Ethereum trading platforms over the last 2.5 years.

The correlation coefficients are high: 96.2% on an hourly interval, 85.7% on a five-minute interval, and 67.1% on a one-minute interval. Rolling three-month correlations support these findings. It ranges from 86.4% to 98.4% hourly, 75.8% to 90.2% on a five-minute interval, and 58.6% to 75.9% on a one-minute interval, as per Coingape.

Such strong correlations give the SEC confidence that the CME ether futures and spot markets are well aligned. This decreases the danger of fraud and manipulation by establishing thorough monitoring and sharing arrangements.

2. Political Pressure Due to Upcoming U.S. Presidential Elections

The forthcoming 2024 US presidential elections have added a political component to the SEC's decision-making process. Pro-crypto politicians like Robert F. Kennedy Jr. and Donald Trump have raised the political stakes in bitcoin regulation. Furthermore, the political situation has prompted the Biden administration to reconsider its stance on Bitcoin.

Historically, the Biden administration has had difficulty in the cryptocurrency business. However, with younger votes vital to the Democrats, demonstrating support for innovation and cryptocurrency could be tactically advantageous. This shift is viewed as an attempt to appeal to a larger voter base by taking a progressive stance on developing technologies.

3. Pressure From US Lawmakers

Bipartisan pressure from US lawmakers substantially impacted the SEC's decision. On May 23, several House legislators, including Majority Whip Tom Emmer and Democrat Josh Gottheimer, wrote a letter to SEC Chairman Gary Gensler. They called on the SEC to authorize spot Ether ETFs and other digital asset instruments.

They also underlined the importance of regulated, transparent, and secure investment avenues for cryptocurrencies. The senators emphasized that approving such ETFs will provide investors with regulated options while preserving strict market surveillance and enforcing securities regulations.

4. Removal Of Staking Clause From Spot Ethereum ETF Applications

The removal of the staking clause from Spot Ethereum ETF applications represented a critical regulatory change. On May 21, Fidelity revised their S-1 application with the SEC, stating that the underlying Ether (ETH) tokens will not be staked. This addressed concerns about the security and regulatory consequences of staking operations.

Furthermore, following Fidelity's lead, other significant companies such as Grayscale and BlackRock have eliminated staking terms from their applications. Earlier, Ark 21Shares made a similar step. As a result, the SEC may have weaponized the dynamics of ETH and staked it to approve permission.

5. Passing Of The FIT21 Bill

On May 22, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21). The law was passed by a vote of 279 to 136 and includes crucial improvements beneficial to the crypto industry:

• The Commodity Futures Trading Commission (CFTC) is recognized as the primary regulator of digital assets, establishing clear roles for the CFTC and SEC.

• Clear regulatory distinctions: The measure states that the CFTC will regulate functional and decentralized crypto assets, while the SEC would manage those classed as securities but not decentralized.

• Consumer protection: The law enacts protection safeguards, restricting the SEC's authority over cryptocurrency exchanges and lowering regulatory ambiguity.

The passage of the FIT21 bill signaled a more structured and balanced regulatory approach. Furthermore, this development may have positively impacted the SEC's decision on the Spot Ethereum ETF.

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