Why the SEC reversed course on the Ether ETF

Transcript

eth went up almost 20% on Monday making it the biggest daily price increase ever in the history of eth I bet you're wondering what is going on prior to Monday we were sitting at a 25% likelihood of the eth ETF approval which was to be decided on May 23rd now in a surprise move it appears that the SEC has done a complete 180 and the odds of the approval have gone from 25% and are now sitting at 75% though many will tell you it is basically inevitable at this point so what just happened well in today's

episode we're going to cover is the ETF getting approved why the sudden change from the SEC what does this mean for crypto and your bags and what should we expect moving forward gmgm welcome to milk Road radio the easiest path to get about crypto I'm Jay Hamilton joined by my co-host Kyle rehead and we believe that onchain is the next online and we're here to help you capitalize on it crypto will go up more than 100x in both users and value over the next decade if you're listening to this right now you're extremely early and have an incredible opportunity to capitalize at milk Road our mission is to make you smarter about crypto that's why we're

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today don't let this bull market opportunity slip through your fingers Kyle let's jump in first question what just happened it's been a while 36 hours let's say as we record this as you guys listen to this it's going to be Wednesday morning so heck it's probably going to be even a bit crazier when you're listening here but just to give a bit of context so obviously we've had the approval for the SEC was coming May 23rd okay this was the next ETF application for ethereum and basically they had to either approve it or they had to deny it there was no more delaying so this was the big date it got to the point where everyone was just like this thing's not happening there was so many things leading up to this that were like it's not happening and at that 25% I think even people were saying

it's basically zero at this point all of a sudden on Monday if you saw on Twitter all of a sudden out of nowhere the SEC just did this 180 where they have asked all the applicants to basically expedite the process to refile there's a few things that they have to do to refile but refile their application and they also notified the NASDAQ and the exchanges that are going to list these ETFs that hey we're going to approve these things you need to get ready and so basically they said everyone you need to be ready it was like Wednesday morning or Tuesday morning I think it was you guys got to have this these filings like finished so that we can do our final due diligence and then get these things approved basically so yeah it's changed the Bloomberg boys that's who we're talking about here Eric

balunis and that they went from 25% to 75% but it appears and even just today just before we started recording there was news that the the NASDAQ was told hey we're leading towards approving this you guys need to get ready and so it's basically inevitable it's pretty much happening should be Thursday but there's even talk that it might happen on Wednesday so it has been a wild turn of events and the interesting thing is no one was freaking ready for this and it was just came at a complete surprise the Bitcoin one was a bit different right everyone knew leading up to it for months it was going to happen there was so much conversation with the SEC but this time around there was just there's been no comments on these applications and then just what 48 hours before the date it's just boom it's all happening

it is a good week for eth holders that is for sure this is super exciting news okay here's the question I'm sure is on everybody's mind is why did the SEC all of a sudden change their view so we don't really know but here's the what we believe anyway crypto is becoming very political over the last few weeks really it's changed really fast part of it is Trump has came out and said hey I'm Pro crypto Biden doesn't know anything about crypto and if I'm elected I'm going to do really good things for crypto right he's been launching nfts he's been big in the space so he really came out of the last two weeks on this stance and a lot of that's because of Ryan selus from Masari who's been really pushing this he's been really getting the political

world and and trying to get a political movement here and it's working on the Trump side Biden has taken the complete opposite stance right but what happened with Trump first coming publicly saying he's Pro crypto then you had on Friday the Sab 121 rule change basically the SEC was trying to push saying that Banks can't custody crypto assets so they were trying to push this forward it went to a vote and it was a bipartisan vote 60 to 38 voting to deny this this requirement and even the majority leader for Biden voted against Biden because Biden came out and said that even if this thing gets passed I'm GNA veto it so it was a surprise to have this many votes and I think there was a bunch of Swing votes from the Democrats there's this big turn of events happen all of a sudden in the

political world saying hey actually we're going to support crypto in the US and Biden I think is a little bit caught off guard The Regulators like Gary Genson see a little bit caught off guard and so it's putting a lot of pressure on the Biden Administration we don't know exactly what happened here but the assumption is either Biden or someone in in this political party has said hey we need to change our tune quickly or we are not going to get voted in and so they've told Gary Gensler hey you guys need to approve this stuff that is the like currently the Assumption of what's going on again we don't actually know also yesterday the same time that this news happened with the EF the FDIC chair his name is Martin grunberg he resigned and he was the guy that's been the leader of operation chokepoint 2.0

trying to cut off the banks trying to cut off crypto he's been like the spearhead of this and he is all of a sudden just had to step down so things are happening really fast right now and and a lot of it is just this political movement to go pro crypto and I think that's what's happening right here and so it's pretty wild maybe it's just black pulling strings like this is what they do but I'm pretty sure it's more on the political side right now obviously it's an election year in the US so it's a big deal they need to get this right so we'll see there's a couple other things coming out this week in terms of just like political decisions and more voting we still don't know if Biden's going to veto that Sab 121 agreement so we'll see I think that decision comes on

Thursday but it appears that this pressure is really working and that's why they did this quick 180 regardless of what happened this is super exciting news here's the thing it happened on Monday afternoon in Eastern Standard Time how did the market react what was the impact on eth and the rest of the crypto markets Kai yeah I think everyone saw this and has seen this already but eth absolutely went ballistic almost 20% up on the day and then continue to go up the next day as well I think it's as we're recording this up like 24% in the last two days it is the biggest uh daily candle in ethereum's history so just a massive mood and I think the reason why is it was clear that most investors were

under allocated to eth right this caught everyone off guard no one was ready for this a lot of people e was reaching it's like low moment right everyone's giving up on it everyone was talking about salana and Bitcoin and those were going to be the it things to cycle the narrative was getting in that eth was going to be skipped this cycle it's still an important asset it's a great technology but no one cares about it this cycle I'll have to wait for next cycle was what the like strong narrative was happening it was hitting its low versus Bitcoin salana was just crushing it and all of a sudden people are scrambling they're like I am not allocated to this asset I need more I need more eth I need more eth beta assets and so everything is going nuts you look at the eth ecosystem the tokens

that are on ethereum Lio ens the L2 tokens like arbitrum they're up like 30 40 50% Pepe I think was up 60% so like it is just fullon nuts right now in the price action of etherum and the assets that are on ethereum so that has been pretty wild I think other than that in terms of just like the people in this space everyone's a little bit confused just wasn't really sure what was going on so people are just trying to get some answers what does this mean is it actually going to get approved if it does get approved does it have staking does it not have staking what about all the lawsuits the SEC is basically suing every big company in ethereum right now including the ethereum foundation so are they really going to approve this asset for an ETF if they're trying to fight

that it's a security so there's a lot of unknowns but here's what we know so far it's coming pretty quickly so it looks like they're not going to allow staking so part of the like refile in that they wanted was remove staking so it's pretty clear that these ETFs are going to get approved but they are not going to be able to stake the eth um I'll talk about why that matters in a second I actually think it's a good thing um the other thing that's been interesting that's come out just this morning is originally about two weeks ago and the reason that we had the nail in the coffin for this ETF was there was some wording in the filings and comments from the SEC saying that if they want these ETFs to be approved they're going to need to file as like a security rather than a

commodity based rule which was a little bit odd Bitcoin didn't have to do this and what we're seeing in the filing so far because everyone has done the refiling this morning as we're talking is they've stuck with the commodity based rules if this gets approved this is the SEC basically conceding and saying eth is not a security so this is has massive implications Beyond just this ETF and I think what's going to happen is likely all of the ETFs will get approved all at once so all the applicants not just I think it's vanac or whoever it is that one on 23rd yeah yeah so rock is to later and a bunch of later but they'll probably do what they did with Bitcoin and just like everything will get approved on Thursday now to be clear this doesn't mean that they go live on Thursday this is just the filing to say

that they are approved it could take weeks to months to actually get the next forms done where they're actually going to figure out how they're going to launch this things now who knows maybe that's going to be sped up as well we actually don't really know at this point um but this to be clear what's happening whether it's Wednesday or Thursday it is not actually to go live so we still don't know the date of when that's going to be just yet yeah that's it other than that we're still looking for answers we're trying to figure out what made the SEC kind of change direction here is G against are gonna get fired like we don't know what's really going on uh but all we know is we're so freaking back and it's wild let's go thanks for bringing the energy today Kai I love it

okay we know that this is likely getting improved it's likely happening on Thursday doesn't mean trading of the eth ETF would go live on Thursday how long that would take still an unknown but let's just set back what what you said it yourself we're so back I love and hate that statement all at the same time but is today is a day when we should all be saying that what does this mean for the crypto blockchain industry as a whole H how big of a deal is this it's massive and I I don't know that people really understand how big this is obviously Bitcoin was a big deal the the Bitcoin ETF getting approved that was what's making this happen too so it that

was a really big deal but I think this one is actually potentially bigger the reason I say that is bitcoin's always been in its own world right it's it was a trillion dollar asset or close to trillion dollar asset before the ETFs got approved it's not where the innovation of crypto exist it's not a smart contract platform it's just a store of value it's very similar to Gold but it's digital and so easy for everyone to wrap their heads around we knew that The Regulators didn't think that Bitcoin was a security and so this one was already a little bit more widely accepted in the like trafi World in general whereas smart contract platforms and the rest of everything we're doing in crypto whether it's Defi and stable coins and gaming and all the things that we're doing that was all like smoke and up in the air we didn't really know

we've never really had this like legitimizing thing of smart contract Platforms in the trifi world and what this does and what makes this approval different than Bitcoin is this is a smart contract platform this is where all the innovation's happening and not just saying like it only happens on ethereum of course happens Sal I'm saying smart contract Platforms in general right this is where stable coins defi all the things are happening and we've basically just got approval saying okay this thing's fine it's legit let's do this now they're not saying that all the tokens are fine I'm sure there's still a bunch of tokens that are securities and whatever like we're not saying this everything's a go but we're saying you know what we're down with this sort of decentralized movement and building applications on a blockchain um

whereas that wasn't what they were saying when they approved Bitcoin so I think one I think that's what makes this just so big and it opens up the door for so much more so I think that's one big thing there I think that more people or more institutions end up moving on chain from this approval than they do from the Bitcoin approval and the reason is those a couple things one when the Bitcoin ETF got approved everyone had to go and do their due diligence all these institutions had to go and learn about Bitcoin right but as I said Bitcoin was simple you didn't have to go too far to learn about ethereum and what that thing's doing and what can exist on there and how this can change CH the internet and change the financial system this is a very long and deep rabbit hole

that every single institution in the US now has to go through not even just us probably worldwide they all have to go down this Rabbit Hole just like they just did with Bitcoin they're still trying to figure out Bitcoin so it's actually gonna be a lot for them but they now have to figure this out and when you start to understand ethereum that's when you really understand what's happening in crypto and on blockchain right it is a big difference from what bitcoin's doing so I think one that's a big deal but also the way that this is set up because they're not allowing staking for eth the interesting thing is this you could buy the Bitcoin ETF or you could buy Bitcoin on chain and there's not much of a difference in terms of your outcome in terms of how much you make most of the Bitcoin ETFs

don't even have fees right now and they those that do it's very small and probably it's cheaper to just buy that than having to move fees on chain using like a coinbase or whatever because there's there's fees associated with that so there's not much of an incentive to move onchain now I do think Bitcoin is a good teaser and people will move and buy the the real onchain stuff as they figure it out but with eth it's very different when they do their due diligence they're going to learn that there is this thing called yield and it is basically a risk-free rate of that you can earn on your eth and it is like three to four percent right that doesn't exist in Bitcoin and so you can't get that from the eth ETF and so what I think is going to happen is institutions

are going to learn about that and go oh why would I buy this ETF I can go online or on chains story I can buy the Ethan I can stake it myself and now I can 3.4% three or 4% institutions absolutely love yield and so I think this is going to be a really big thing to educate these institutions on what this means and they're going to want this yield and so I think a lot of them are actually going to move on chain rather than just buying the ETF itself I think there'll be a combination of both still going to do well still have tons of flows but I think this is just a bigger deal to bring things on chain and then lastly the supply crunch that this creates with eth is so different than anything we've ever seen the exciting thing about Bitcoin was hey this was the

first you know asset to be wrapped by an ETF that humans can't increase the supply that was the big narrative with this ETF and why we had this big Supply crunch it was quite obvious eth takes this thing to another level because eth is deflationary it's not just that we can't increase the supply it's that the supply is actually decreasing every single day and that's going to get even more and more aggressive because this ETF frankly is going to create more activity on chain which means we're going to burn more eth so that's a big deal then there's the fact that 35% of all eth is currently staked and that is increasing 10% of all eth is being used in defi so there actually just is no eth and eth is becoming more and more deflationary while we're about to open up the pipeline to ethereum through this

ETF so like we talk about the supply crunch we had with Bitcoin it's going to be even more exaggerated over on eth which is also about a third of the size of Bitcoin so it's hard to not be extremely bullish about this launch we'll put it that way it's an interesting take you have that e the EF might be much more of a gateway drug to crypto and the onchain world than the Bitcoin ETF was the Bitcoin ETF was the but not really a gateway to understand smart contracts and the broader ecosystem is that is being built on chain with which etherium will lead people down that path which will just lead more people on chain okay

big question though Bitcoin ETF incredible inflows in the first three months three and a half months now of it launching what do you think that we'll see when the eth ETF does go live what sort of flows do you think we can expect same as Bitcoin before we get into flows even before the Bitcoin ETF was approved we went up I don't know bitcoin's market cap went up by like hundreds of billions of dollars so like the flows will come to eth even before this ETF gets approved that's I can almost guarantee that right and then there's just like the indirect part of these approvals like Bitcoin the flows have been great I think it's 20 billion over the first three and a half months it's been a lot of flows going into Bitcoin ETF

specifically but its market cap went up way more because you had it was legitimizing there's you know companies want to now hold it on their balance sheets whether it's ETF or not like a lot of flows just came and I think the same thing is going to happen with eth without a doubt in my mind and so that is a really big deal the second thing is will the flows be the same as Bitcoin absolutely not and so we can't be comparing like Bitcoin had 20 billion so EAS five billion so it's a failure that's not how this works it is a much smaller asset this is a big surprise so it's not like people have been learning about it for months so it's going to be very different if we look at one of the best things we can look at is so grayscale had launched its trust funds

last cycle in last bull cycle and it had gptc and it had eth e okay these two they're not ETFs but they're somewhat similar and anyone could buy them it didn't get as much flows as something like these ETFs will obviously because they're more like they're like pink slips they're like not super legit but they're legit enough but what we saw was in terms of the amount that both of these accum accumulated in terms of value eth was about 30 3% of Bitcoin so maybe we can extrapolate that and go okay maybe eth gets about 33% of the inflows as what Bitcoin has received so far again no idea if that actually happens it's just some napkin math to see so if that would happen then that means in the first three and a half months from the e ETF specifically it'd be about 8 billion doar of inflows which

is something like I don't know at least from when we did this math in one of our Pro reports it was like two and a half percent of the total market cap of e which is like really massive so I don't really have a strong opinion or not on will the flows be big I think ethereum is definitely harder to understand you have to go down a deeper Rabbit Hole although at the same time it has yield which people love and then at the same time it also sometimes it's not hard to understand because it's not talking about money it's talking about an application it's like apple right it's an app store but for decentralized apps if you explain it that way institutions actually that especially that invest in Tech they might actually wrap their heads around this much easier I don't know so it's hard to say what happens

here I think the big thing though is even without the flow it's just this really legitimizes ethereum it legitimizes smart contracts it legitimizes just the crypto ecosystem in general and I think this is a massive step forward plus I think a lot of Regulation is going to come favorably from this now this is our step in the right direction of what we needed for good regulation and whether the like stepping down of that FDIC chairman or not was because of the same stuff I'm not sure but it seems things are changing in the political world and that means the ETF approval great regulation is really what's going to be huge stable coin regulation defi regulation basically allowing institutions to not just buy this ETF but to come on chain and do things on chain which is what they really want the ones that know about it and and I think that comes and

Falls this was like the first step that was needed I think it's going to be a big deal no matter what just super exciting so big for the space in so many ways Kai Before I Let You Go just one last question for you people see a 20% candle on a day and they think fomo or I missed out a lot lot of people think ah it's it already went up I missed out have people missed out or is there more opportunity still ahead what's funny is yesterday morning so Monday morning I before I started work I had up my my quest trade so this is like my tfsa my tax savings account and I had put some money in there last week and I went to buy eth e the because it had the discount and and so I was going to buy

that and then I got a phone call for a meeting and I never ended up making the trade and then I kind of forgot about it and then all the news came out it went up turn I was like what do I do now thankfully I'm fully exposed to ethereum so like this isn't the end of the world for me look we're up 20 something per now in the last 36 hours what happens next anyone's guess shortterm obviously if these things don't actually get approved then see you later this thing's going to tank uh pretty sure they get approved what happens there let's look at Bitcoin it went up and up and we hit all-time highs by the time that it basically was approved so like probably that happen so do we have a bit of a pullback here in the very short term maybe 20% is massive someone's going to

take some profits here for sure but like I said at the beginning everyone is offside here everyone is under allocated so I think if when this thing gets approved we're going to have a massive run and I think eth gets to alltime highs pretty quickly this year so whether you're buying eth whether you're buying assets that are on eth I think that's a good play as well though like just like Bitcoin if the flows are coming things getting approved like you do not want to not be holding eth that would just be like don't there's a lot of people on Twitter right now that are like okay e ETF getting approved it's up 20% what beta token should I hold should I buy Pepe should I buy this and maybe with a little bit of percent of your portfolio but like bu eth what do you

mean obviously that's the thing you need to be buying it's the for sure thing you just watched this happen with Bitcoin don't mid curve this thing just buy it and you're GNA get to all time high it's a double from here like it's pretty massive Kai thanks so much for joining us today and taking us through this exciting news uh everybody listening in we are trying out a new format of shorter episodes that we're going to bring to you on a more regular basis in order to keep you guys up to dat but in a short amount of time we'd love to hear some quick feedback from you do you like this short format what did you think about today's episode comment on YouTube or shoot us a note on Twitter or wherever you are listening to this

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invest more than you're willing to lose thank you friends and we'll see you in the next one