Bitcoin
SEC Approval of ETH ETFs Paves the Way for Ethereum Dominance
The SEC’s recent approval of ETH ETFs could eventually be a more important event for Ethereum than Bitcoin. Bitcoin’s dominance, niche, and value proposition as a store of value are well established and are unlikely to be challenged in the near term. Ethereum, however, faces much stiffer competition, sometimes struggling to distinguish itself among smart contract platform narratives – until recently.
We now know that there are two major crypto assets that are unlikely to be at risk of being called securities by US regulators. This may not mean much to retail investors, especially outside the US, but the elimination of regulatory uncertainty will influence many institutional investors to consider chains to use, build and invest in.
You are reading Long and short cryptoour weekly newsletter with insights, news and analysis for the professional investor. Sign here to receive it in your inbox every Wednesday.
Ethereum will likely continue to dominate developer activity in the blockchain space, at least when it comes to large projects. According to Electric Capital’s Developer Report, Ethereum (and the EVM chain in general) attracted many more developers than all other chains last year. Potential capital flows from ETFs, accessible institutional avenues like Coinbase’s BASE L2, and now this seal of legitimacy could further strengthen its dominance.
From a design perspective, the Ethereum chain has a robust pipeline that includes BlackRock’s EigenLayer, Ethena, and BUIDL. Just the synthetic dollar Ethena (USDe) accumulated the entire market capitalization of stablecoins on Solana in just a few months, an impressive $3 billion. This doesn’t mean that other networks won’t host important crypto projects – they certainly will. But only Ethereum (for now) hosts protocols with the history and track record necessary for institutions to participate with significant capital. Think of AAVE or Uniswap, for example.
Lastly, a higher ETH price could boost the Ethereum DeFi economy, triggering a powerful feedback loop. To give a simple example: in AAVE alone, there is about $9 billion in collateral tied to ETH (between wETH, wstETH, weETH), plus another $1 billion or so in L2s. Of course, some of this collateral is used for delta-neutral strategies like recursive lending and point farming, but most of it probably isn’t.
A higher ETH price – and collateral value – could act as a stimulus package for its cryptoeconomy. It creates wealth effects, more spending, more investment, more leverage. Especially if ETH-related altcoins continue to rise.
It’s too early to say, but we can look back to this moment in time when Ethereum is establishing itself as the “Amazon” of the digital asset economy. If the scenario plays out (still a big “if”), it could relegate other layer 1 smart contracts to niche players (like “Etsys”), even if they still support thriving communities. It’s not clear (at least to me) whether this is the best path forward for the industry; perhaps a more balanced multi-chain world would ultimately maximize adoption – we may never know. But at this stage, Ethereum dominance certainly appears to be the most likely outcome.
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.