Spot ETF and Cancun upgrade, may Ethereum usher in an explosion?

The Bitcoin spot ETF narrative is still continuing. Against the background of Bitcoin's surge, Ethereum is not willing to stand out.

From the external environment, the narrative of ETF has come to Ethereum again. In addition to Grayscale, there are currently 6 companies including BlackRock, Fidelity, and VanEck. Several institutions have submitted applications for the issuance of spot ETFs to the SEC, and March will usher in the latest wave of approvals.

From the perspective of internal conditions, the certainty of Ethereum is good for the Cancun upgrade and it is imminent; the resurgence of the re-pledge agreement at the beginning of the year also caused a long silence. Ethereum has attracted much attention. On February 20, the price of Ethereum briefly exceeded $3,000, setting the highest record since April 2022.

Judging from various performances, the spotlight on the stage seems to really shine on Ethereum.

ETF game, this time comes to Ethereum

Bitcoin has exceeded $53,000, and Ethereum is not to be outdone. On February 20, Ethereum briefly exceeded US$3,000. Although it subsequently fell to around US$2,900 and is now trading at US$2,958, it still managed to set its highest record in the past two years. In fact, what is slightly different from the 23 years when Bitcoin led the market growth is that this year alone, Ethereum has driven more than Bitcoin. As of February 22, Ethereum has risen by 28%, while Bitcoin has risen by 21%. . It can be seen that from a certain perspective, the current encryption narrative is gradually turning to Ethereum.

Ethereum price trend in the past 7 days, source: OKX

From the narrative Judging from the above, there are currently two main driving factors for Ethereum. One is the wave of spot ETF applications, and the other is the upcoming Cancun upgrade. The most important thing at this stage is undoubtedly ETFs that can attract traditional funds into the market.

From the perspective of Bitcoin, since 11 Bitcoin spot ETFs were approved, although Bitcoin has experienced a short-term profit-taking sell-off, it has been supported by institutions. Since then, more than US$5.2 billion has flowed into the Bitcoin ETF market, leading Bitcoin to successfully regain its lost ground and is now trading at US$51,759.

Because of the successful experience of Bitcoin ETF, the narrative of Ethereum ETF has also attracted widespread attention. As of now, in addition to Grayscale applying for a convertible spot ETF in the original trust, six other institutions including BlackRock, Fidelity, Invesco, Hashdex, 21shares, and VanEck have submitted applications for Ethereum spot ETFs. Previously, the SEC postponed the first and second rounds of applications for all applicants. The current approval date is March 5, and the latest approval date is July, with March and May being the intensive approval period.

Ethereum spot ETF application list, source: Bloomberg

Throughout the application process of Bitcoin, the period approaching the approval date is the period when prices are most likely to rise and accumulate. This is also the reason for the short-term rise of Ethereum. From the perspective of the external environment alone, Ethereum has a very similar situation to the previous Bitcoin. First, the futures ETF has been approved and listed as a regulated futures contract on the Chicago Mercantile Exchange; second, the applicant institutions are quite consistent. All have large financial giants stationed here.

However, judging from the prediction of approval results, there are still differences in the forecast caliber within the industry. Institutions based on passability generally adhere to the argument that it is difficult to reject spot products if futures have passed. After all, in the application for Bitcoin, it was this point that successfully promoted the approval of Bitcoin spot ETFs. Bloomberg analyst Eric Balchunas said that the probability of Ethereum ETF being approved is 70%. The reason is that the SEC cannot reject spot ETFs on the basis of the approval of futures ETFs, otherwise it will lead to litigation. Brokerage firm Bernstein said the Ethereum spot ETF has about a 50% chance of being approved in May and will almost certainly be approved within the next 12 months. Standard Chartered Bank directly believes that the SEC will approve the Ethereum spot ETF on May 23.

From the perspective of rejection, the current situation faced by Ethereum is slightly different from that of Bitcoin. The core is the issue of identifying the attributes of Ethereum.

In the crypto community, the dispute between commodity theory and security theory has been protracted. Security theory usually means complying with more stringent regulations, while Ethereum As one of the typical mainstream currencies, Fang’s qualitative representation is of great significance. In public, the SEC has made it clear that Bitcoin is a commodity. However, due to the characteristics of Ethereum such as staking to earn interest, SEC Chairman Gary Gensler said in March last year that according to U.S. law, tokens using pledge agreements should be considered securities. .

But it is worth noting that in Binance’s lawsuit last year, the SEC explicitly classified more than ten tokens as securities, including but not limited to Solana ( SOL), Cardano (ADA), Polygon (MATIC), Coti (COTI), Algorand (ALGO), Filecoin (FIL), Cosmos (ATOM), Sandbox (SAND), Axie Infinity (AXS), Decentraland (MANA). However, throughout the entire lawsuit, the SEC did not mention Ethereum, and when asked about its attributes, the SEC chairman also avoided talking about it, making the regulatory attributes of Ethereum even more confusing.

In this context, many institutions believe that the approval of Ethereum spot ETFs is difficult to say smoothly. A report from JPMorgan Chase stated that the Ethereum spot ETF is unlikely to be approved in the next three months. It supports the view of classifying Ethereum as a commodity, but believes that the US SEC is unlikely to make a decision before May. In response to the argument that the Ethereum spot ETF will be approved by the end of March 2024, Bloomberg analyst James Seyffart said bluntly on the X platform, "I bet with 4 ETH that this will not happen."

The debate continues to this day. Just recently, the US SEC solicited opinions on Grayscale Ethereum Trust (ETHE)'s application to convert into a spot ETF. Coinbase explained in a 27-page comment letter the reasons why the SEC should approve the application from legal, technical and economic perspectives. It believes that the current market consensus has made it clear that ETH is a commodity rather than a security, and also emphasizes the proof of equity of ETH. (PoS) has significant governance capabilities and exhibits strong characteristics in terms of ownership concentration, consensus, liquidity, and governance, thereby reducing the risk of fraud and manipulation. Economic theory also shows that both ETH and BTC are flexible in meeting SEC ETP approval standards and can cope with systemic and market risks.

Of course, the SEC has not responded yet.

Cancun Upgrade, Ethereum’s Definitive Narrative

Compared to spot ETFs that are still in the game, the second major narrative of Ethereum is quite clear-Cancun Upgrade (Dencun).

Upgrades have been one of the important drivers of Ethereum over the years, especially after the switch to POS. Upgrades usually benefit many scalability sectors. Looking at the price performance of each upgrade proposal, research by Cesare Fracassi and Moazzam Khoja of the University of Texas at Austin believes that the price of Ethereum will increase by 18% in the weeks leading up to the last Ethereum conference call before the main proposal. The facts are basically the same. When Shanghai upgraded last year, despite facing selling pressure from pledge unlocking, the price of Ethereum did not fall but rose to US$2,100.

Ethereum’s price trend in the past year, source: OKX

Details Look, this Cancun upgrade was originally scheduled for October 2023, but was continuously postponed due to various reasons. According to the latest news, the Cancun upgrade is planned to be carried out on March 13, 2024. For this reason, the Ethereum client Geth has been The v1.13.12 version was released on September 9th, laying the foundation for the Cancun hard fork of the Ethereum mainnet. This upgrade is the key to further expansion of Ethereum. It can increase the transaction volume that the Ethereum network can respond to per second, and will also open a new stage of development of Ethereum's data storage and retrieval capabilities. After the upgrade is completed, the Gas fees required for digital asset transactions on the Ethereum Layer 2 network will be significantly reduced, perhaps by as much as 14 times. It can be seen that the performance improvement brought by the upgrade will greatly benefit the long-term development of Ethereum.

In addition to upgrades, the popularity of the re-pledge agreement in recent months has also driven the market's attention to Ethereum. According to data from DefiLlama, after the staking cap was temporarily lifted, the re-staking protocol grew rapidly and currently ranks sixth among many protocols, with a total TVL of over $6.99 billion. Taking the typical project EigenLayer as an example, the TVL of EigenLayer increased from US$2.15 billion on February 5 to US$6.05 billion on February 10.

The hype of Ethereum has already begun

< p style="text-align: left;">Under the superposition of the above expectations, Ethereum has lived up to expectations and once again exceeded $3,000. From the market point of view, large institutions have also used actions to show their bullish trend towards Ethereum. According to the on-chain tracker Spotonchain, a large number of whales have begun to hoard Ethereum. Data shows that approximately 65,000 were purchased by unknown wallet addresses in the past three days. ETH. Stablecoin supply also reflects a similar trend. DefiLlama data shows that since January 1, Ethereum stablecoin supply has increased by 4.4%, from $68 billion to $71 billion.

Everything seems to be going well, but many people in the industry have expressed other concerns. After the adoption of the Bitcoin ETF, Bitcoin quickly fell by 15% and did not return to high ground until a month later. This situation also led many people to believe that the Ethereum ETF would also face a huge sell-off after the adoption. In addition, considering the existence of the staking mechanism, analysts from rating agency S&P Global said that the Ethereum ETF may "bring new centralization risks to the blockchain network" because institutional custody will make ETH more controlled. Centralized, although the decentralized protocol Lido currently accounts for 31% of Ethereum’s share.

But regardless, the hype surrounding Ethereum has begun. A typical data is that since BlackRock first submitted an Ethereum spot ETF application on November 9, 2023, the price of Ethereum has increased by 27.9%. Previously, after BlackRock submitted its application for a Bitcoin spot ETF for the first time, Bitcoin surged by 55%.

From this point of view, before the ETF application is implemented, opportunities and risks coexist, and the participants can only remain vigilant and manage their positions. After all, no matter how FOMO the outside world is, the final destination of profits and losses is still borne by oneself.