ETH analysis: What does the SEC’s regulation change mean for the Ethereum prices?

on Jun 20, 2024
  • The SEC has changed its tune with regards to Ethereum this week, with regulation changes announced.
  • But what do these new developments mean?
  • Invezz spoke to three ETH experts on what this means for the Ethereum prices.

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Crypto investors and traders everywhere celebrated when news broke this week that United States regulator, the Securities and Exchange Commission (SEC), is in the process of concluding and ending its investigation into Ethereum.

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This means that the SEC will not recognize ETH transactions as securities transactions. But, for those of us who aren’t US regulation lawyers, what exactly does this mean?

Invezz spoke to three Ethereum experts: Greg Benhaim, portfolio manager at digital asset investment manager 3iQ, crypto influencer Aquarius Maximus and Fineqia analyst David Morrison, on what the move could imply. 

Significance of the SEC announcement

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“Well for one, the SEC’s decision not to classify Ethereum as a securities transaction provides regulatory clarity, fostering innovation and broader adoption of blockchain technology,” says Maximus. 

It supports the growth of decentralized finance (DeFi) platforms and decentralized applications (DApps) on Ethereum, driving more utility and value to it, while setting a positive precedent for other cryptocurrencies.

Calling it a great news for crypto, Morrison says,

The SEC’s decision is great news for Ethereum and crypto in general – and also aligns the SEC with the CFTC (Commodity Futures Trading Commission), which classifies Ethereum as a commodity.

According to Morrison, the change will make it easier for investors and businesses to understand how to comply with regulations by removing a major source of legal uncertainty.

The resultant reduction in regulatory scrutiny may cut costs and make it easier for developers to use the network, he notes.

The decision will also boost confidence among investors and institutions. This, in turn, should increase the number of users on the Ethereum network, which should lead to more projects in development.”

Perhaps most crucially, Morrison believes that the development will boost Ethereum’s liquidity, adding that “it should also make it easier for Ethereum to launch on existing exchanges, and in so doing, opening up access and increasing liquidity.”

A nod from the SEC 

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The SEC has been notoriously circumspect when it comes to anything crypto in the past, and experts are divided as to whether or not the news is a vote of confidence in Ethereum from the SEC.

“The decision indicates that the SEC views Ethereum as a major element within crypto, and is itself an investable asset. It’s also a big thumbs-up for blockchain technology from a major regulator,” says Morrison.

But some, like Greg Benhaim, portfolio manager at digital asset investment manager 3iQ, disagree.

I don’t believe this to be a vote of confidence by the SEC,” he says.

When the Bitcoin ETF was approved, Gary Gensler was adamant to say this does not mean they endorse or approve of Bitcoin. The SEC was backed into a corner by the Grayscale lawsuit and had no choice but to approve the vehicle.

According to Benhaim, the SEC has a long lineage of hesitancy when it comes to crypto – even as far back as 2018, when then-director of the SEC William Hinman insisted that ETH was not a security.

With Gary Gensler at the helm of the SEC, there has been a conscious decision to prevent crypto ETFs from flooding the US markets,” he says. “After losing the lawsuit, the SEC no longer has a reasonable argument to prevent the launch of an ETH ETF, consequently, it no longer has the need to categorize ETH as a security.

ETH price in the short term

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The Ethereum price this week is up close to 2% at the time of this article going to press. But what will it do going forward from here?

“It should pose a positive effect on the markets, perhaps influencing investors to hold for the long-term – driving up prices a bit,” Maximus says. However, she notes that lately the markets overall have responded a bit slowly to regulatory changes, compared to prior years.

“Short term, I anticipate an immediate price spike followed by a reversion over the course of the first week,” says Benhaim.

But, largely, the news may not affect ETH as much as it affects other coins, according to Benhaim:

Given that the Ethereum ETF has already been approved (outside of the S-1 Filings), I believe the classification of a non-security has become far less relevant and the price movement will be muted. More broadly, I anticipate this news to have a more significant short-term impact to the price of altcoins, who’s regulatory statuses are far more murky.”

ETH price in the long term

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Longer-term, things are looking more positive for Ether, according to all three experts, with steady growth very likely.

“We anticipate price appreciation in the long run,” says Benhaim, but he cautions against viewing the Ether price in isolation, saying that many complex factors may influence the price of ETH in the next 1 to 6 months. 

He adds that the pending approval of the ETFs and categorization of a non-security “opens up the floodgates for the Grayscale ETH redemptions.”

If we extrapolate the redemptions from their Bitcoin vehicle to ETH, there is roughly $7 billion in redemptions over the next 6 months.”

This significant number that may not be offset by inflows, as institutions are far more comfortable investing in Bitcoin than in Ethereum.

But Benhaim does add that, irrespective of the ETFs, Ether is seeing a lot of growth on chain, with daily active users on ETH L2s hitting all time highs every week. 

“This continued growth and user adoption will positively impact price in a long term, sustainable manner. Additionally, global macroeconomic factors such as US interest rates, inflation, and so on, will influence price significantly in the next 6 months,” he concluded.

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