SEC Wants To Define Ether as A Security, Bitcoin Rebounds

Key Takeaways

  • The Securities and Exchange Commission (SEC) is reportedly building a case to classify ether as a security.
  • Bitcoin rebounded Monday, crossing $70,000 for the first time in the past five days.
  • Last Tuesday, bitcoin experienced its largest single-day drop in price since the collapse of crypto exchange FTX.
  • BlackRock launched a tokenized fund on the Ethereum network that is backed by traditional assets such as U.S. Treasurys.
  • After seeing spot bitcoin exchange-traded fund (ETF) inflows turn into outflows last week, analysts are now tracking the viability of a spot ether ETF approval by the end of May.

What Happened in Crypto Markets Last Week?

The crypto market shook off some of the jitters from last week, creeping back up in the green on Monday. Bitcoin rebounded past $70,000, and gains were seen across crypto tokens and crypto-related stocks.

After hitting a series of all-time highs in the previous weeks, spot bitcoin exchange-traded fund (ETF) inflows have dried up and the bitcoin price posted its largest single-day drop in more than two years. Meanwhile, ether found itself in focus after reports that the Securities and Exchange Commission (SEC) is looking to classify it as a security.

Despite that negative news, global investment firm BlackRock disclosed a new tokenized fund on the Ethereum network.

SEC Reportedly Targeted Ethereum

The SEC is pursuing an investigation to classify ether (ETH), the native cryptocurrency of the Ethereum network, as a security, Fortune reported. Companies that have received subpoenas related to this probe have said that the SEC is demanding documents and financial records concerning their dealings with the Ethereum Foundation, which is the Switzerland-based non-profit organization overseeing the blockchain’s governance and development.

The investigation appears to have gained traction following the completion of Ethereum’s transition to a proof-of-stake model in September 2022. The SEC perceives this network change to resemble an investment contract, which potentially could qualify ether as a security under the agency’s purview.

Notably, this development may point to a derailment of the crypto industry’s hopes for SEC approval of spot ether ETFs in the near future. That said, a number of spot ether ETF applicants have indicated they would be willing to accept the designation of the crypto asset as a security, according to a report in Forbes.

Bitcoin Experiences Largest Single-Day Drop Since FTX Collapse

Bitcoin (BTC) clawed back above $70,000 Monday morning, after big declines last week. The largest cryptocurrency dropped below $62,000 by March 20, after optimism around spot bitcoin ETFs drove the price to multiple highs, the most recent being past $73,000 less than a week prior.

The sharp drop last week was particularly notable, as it was more than 8% and the largest single-day drop for the crypto asset since November 2022 in the midst of the collapse of now-defunct crypto exchange FTX.

“It appears that volatile price activity has been more concentrated during U.S. opening hours,” said Kaiko Research on Monday, adding that “the current spike in volatility follows an unusually low volume and volatility period, making the recent fluctuations feel more pronounced.”

Net outflows for the spot bitcoin ETFs were at historical highs during the sharp price decline, according to BitMEX Research. The outflows peaked on Tuesday last week at roughly $326 million, and the numbers the next day weren’t much better, with investors pulling out around $261 million.

According to Bloomberg analyst James Seyffart, last week’s outflows were likely due to a bankruptcy case involving crypto lender Genesis. Just the previous week, spot bitcoin ETF inflows had been hitting all-time highs.

BlackRock Launches Tokenized Fund on Ethereum

BlackRock (BLK) unveiled its tokenized asset fund built on the Ethereum blockchain. The BlackRock USD Institutional Digital Liquidity Fund, represented by the BUIDL token, is fully backed by cash, U.S. Treasury bills, and repurchase agreements.

Token holders will receive daily yield payouts facilitated by the Ethereum network. Key other participants in the project include Securitize, BNY Mellon, Anchorage Digital Bank NA, BitGo, Coinbase Global (COIN), and Fireblocks. BlackRock also has made an undisclosed investment in transfer agent Securitize.

BlackRock also has a spot ether ETF application under review at the SEC, and CEO Larry Fink previously discussed the promise of tokenization in a July 2023 interview with Fox Business shortly after the investment firm’s spot bitcoin ETF application was filed.

What To Expect in the Markets This Week

While bitcoin has recovered somewhat from the lows of last week, analysts are waiting to see if spot bitcoin ETF inflows can turn positive again. Notably, BlackRock’s iShares Bitcoin Trust (IBIT) is closing the gap with Grayscale Bitcoin Trust (GBTC) in terms of total assets under management (AUM) and could soon take on the role as the largest spot bitcoin ETF.

As it often does, rising bitcoin carries other cryptocurrencies and crypto-related stocks higher with it. Ether was trading up by about 7% Monday, while Solana (SOL) gained nearly 10%. Shares of Microstrategy Inc. (MSTR) were up roughly 20%, while Coinbase stock rose more than 8% in afternoon trading Monday.

Elsewhere, declining odds of spot ether ETF approvals by the end of May given by both analysts and prediction markets are on the minds of those who want to see bitcoin’s bull run spread into the rest of the crypto market. Additionally, it’s unclear if staking would be allowed in a potential spot ether ETF, as outlined in a recently revised application for one submitted by Fidelity.

Be the first to comment

Leave a Reply

Your email address will not be published.