ARK Invest and 21Shares Refine ETF Strategy as SEC Decisions Loom

ARK Invest and 21Shares have revised their spot Ethereum ETF proposal, removing staking plans to potentially streamline the application in response to SEC feedback.

Ethereum has witnessed significant changes, notably a sharp decrease in transaction costs due to the Dencun upgrade, while Ethereum's influence on the broader crypto market continues to evolve. Meanwhile, financial analysts and developers are closely watching Ethereum’s impact on market dynamics, especially its correlation with Bitcoin as strategic shifts and technological advancements are proposed to further optimize network efficiency and user costs.

ARK Invest and 21Shares Update Spot Ethereum ETF Proposal

ARK Invest and 21Shares have revised their proposal for a spot Ethereum exchange-traded fund (ETF), removing prior plans for staking activities. This amendment was made in the filing submitted on May 10, marking a significant departure from the original version which included a strategy of staking part of the ETF's assets to earn rewards.

Strategic Shift in Response to Regulatory Feedback

The initial proposal detailed that 21Shares would engage in staking through third-party providers, with the generated rewards classified as income for the fund. However, the updated document eliminates all mentions of staking activities. Eric Balchunas, a senior ETF analyst at Bloomberg, suggests that this revision could be an attempt to refine the application in light of potential feedback from the U.S. Securities and Exchange Commission (SEC), or possibly to minimize the information that could lead to a regulatory rejection.

Regulatory Hurdles for Cryptocurrency ETFs

The SEC has shown considerable caution in approving cryptocurrency ETFs. It approved the first spot Bitcoin ETFs only in January after a lengthy period of scrutiny. The regulator's approach to Ethereum-based ETFs has been similarly cautious, with several proposals from prominent financial entities like Invesco, Grayscale, and BlackRock facing delays.

Details of the Revised ETF Proposal

If approved, the ETF proposed by ARK Invest and 21Shares would offer direct exposure to Ethereum and would be listed for trading on the Cboe BZX Exchange. The fund intends to use the CME CF Ether-Dollar Reference Rate – New York Variant for pricing.

Meanwhile, Delaware Trust Company has been designated as the trustee, with Coinbase Custody Trust Company holding the Ethereum assets. ARK Investment Management is involved as a sub-adviser, focusing on marketing the shares.

Upcoming SEC Decisions

The SEC is scheduled to make a decision on VanEck's spot Ethereum ETF by May 23, with a decision on the ARK and 21Shares application following on May 24. These decisions are eagerly anticipated by the investment community, as they will significantly influence the landscape for crypto investment products in the U.S. Balchunas has recently lowered his projection for the approval of a spot Ethereum ETF by late May from about 70% to 25%, reflecting the growing regulatory challenges.

With these deadlines approaching, investors and market observers are keenly watching the SEC's moves, which will likely shape the future trajectory of digital asset investments in the U.S. market.

Markus Thielen Highlights Concerns Over Ethereum's Future, Citing Impact on Bitcoin

Markus Thielen, Chief Research Officer at 10x Research, has recently provided a sobering outlook on Ethereum, the second-largest crypto by market cap, predicting a potential decline to $2,500. His analysis shines a spotlight on weak fundamentals within the Ethereum network, which he believes could not only devalue Ethereum itself but also adversely affect Bitcoin's performance.

Ethereum's Diminishing Role in the Crypto Market

Ethereum has been a pivotal player in the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), contributing significantly to the expansion of these sectors. However, Thielen points out that despite its foundational role, Ethereum is currently experiencing a downturn that might not be a mere fluctuation but a symptom of deeper issues.

During the 2020/2021 cycle, Ethereum was celebrated for its potential to disrupt traditional banking systems, and the explosion in NFT minting seemed to herald a new era for its blockchain technology.

Yet, according to Thielen, Ethereum's developers have failed to capitalize on critical moments to innovate and scale the platform. This sluggish response to development opportunities is now seen as a major liability, impacting the platform's ability to sustain its earlier momentum.

Interdependency Between Ethereum and Bitcoin

A particularly concerning aspect of Ethereum's struggles is its high correlation with Bitcoin. Thielen notes an R-square of 95% between the two cryptocurrencies, indicating that movements in Ethereum could closely affect Bitcoin's market behavior. This connection suggests that Ethereum's problems could hinder significant fiat investment into Bitcoin, just as the broader cryptocurrency market is attempting to stabilize.

Current Market Conditions and Ethereum's Performance

The broader context for Thielen's analysis is a crypto market experiencing heightened volatility and uncertainty. As of the latest data, Ethereum's price has fallen by 1.58% in the past 24 hours, reaching $2,880.74. This decline is part of a larger trend affecting the entire crypto sector, which is currently under considerable selling pressure.

Glassnode's reports provide additional insight into the situation. During the recent enthusiasm over the approval of spot Bitcoin ETFs, Bitcoin's Net Unrealized Profit/Loss (NUPL) metric surged, entering what is typically considered a 'euphoria phase' significantly earlier than Ethereum's corresponding metric. This indicates that Bitcoin investors have been realizing profits at a quicker rate than their Ethereum counterparts, which could reflect differing levels of confidence in the two cryptocurrencies.

Implications for Investors and the Crypto Ecosystem

Thielen's forecast and analysis serve as a cautionary tale for investors who might be considering the interplay between different elements of the crypto ecosystem. The potential decline in Ethereum not only raises concerns about its viability as a leading crypto asset but also about its influence on the broader market, including Bitcoin.

Investors and market watchers will likely keep a close eye on developments within Ethereum's network and the subsequent effects on market dynamics, especially in light of Thielen's stark warnings. The coming months could be critical in determining whether Ethereum can address its fundamental issues or if it will continue to pose a systemic risk to the crypto ecosystem at large.

Ethereum Network Sees Record Low Gas Prices Following Dencun Upgrade

Meanwhile, the Ethereum network has reached a new milestone in terms of cost efficiency. Automated tracking services like Etherscan report that the average gas fee on the Ethereum network has plummeted to 6 Gwei, the lowest since January 2020. This significant reduction in transaction costs marks a new era of affordability and accessibility for Ethereum users.

Impact of the Dencun Upgrade on Ethereum

The recent drop in gas prices can largely be attributed to the successful implementation of the Dencun upgrade, a major network update that introduced a new feature known as "blobs." This enhancement has optimized data storage and processing on the network, leading to a dramatic decrease in transaction fees. Since the upgrade's activation in mid-March 2024, USD-denominated Ethereum fees have decreased by 15 times, falling from $30 to just $2, according to data from BitInfoCharts.

Low Market Activity and Reduced Costs

The current low in gas prices also coincides with a period of decreased on-chain activity on Ethereum, as the broader crypto market experiences a temporary slowdown. This reduction in demand for transaction processing has contributed to the lower costs. Furthermore, the Ethereum supply has lost its deflationary status, a change driven by both the Dencun upgrade and the lower market activity.

New Opportunities for Users and Developers

The reduction in gas fees has opened up new possibilities for Ethereum users and developers. Transactions that once seemed prohibitively expensive are now more accessible. For instance, swapping assets now incurs a mere $5 commission, and cross-chain bridging costs only $2. Minting non-fungible tokens (NFTs) on Ethereum, which has become a significant use case for the blockchain, is now available for just $9.

The Multi-Dimensional Gas Proposal

Amidst these developments, Ethereum founder Vitalik Buterin has proposed a further radical upgrade to the Ethereum gas mechanism. The proposed "multi-dimensional gas" system aims to refine how the network manages different resources, potentially increasing its throughput while maintaining safety. This concept represents a sophisticated evolution in the Ethereum ecosystem, reflecting its growing maturity and the need for more nuanced resource management.

Implications for the Blockchain Ecosystem

The advancements in Ethereum's technology and the consequent reduction in transaction fees are expected to have far-reaching effects on the blockchain ecosystem. Lower costs could drive increased adoption of Ethereum-based applications, particularly in DeFi and NFTs, areas where high transaction fees have previously been a barrier. Additionally, these developments may enhance Ethereum's competitiveness against other blockchains that have emerged as lower-cost alternatives.

Market Watch and Future Predictions

As Ethereum continues to develop and implement new technological improvements, market watchers and participants are closely monitoring how these changes will affect the broader crypto landscape. The potential increase in network activity, driven by lower transaction costs, could further stabilize Ethereum's market position and influence future innovations in the space.

Ethereum's record low gas prices following the Dencun upgrade represent a significant development in the cryptocurrency world, highlighting the ongoing efforts to enhance network efficiency and user experience. As the community looks forward to the implementation of multi-dimensional gas, the promise of even greater improvements looms on the horizon, setting the stage for the next chapter in Ethereum's evolution.