Investment giant BlackRock has significantly expanded its presence in the crypto market through the launch of new Ethereum (ETH) spot exchange-traded funds (ETFs). Despite regulatory hurdles and initial skepticism, these ETFs have seen substantial investor interest, signaling robust institutional confidence in Ethereum's long-term potential. Alongside its dominant position in Bitcoin ETFs, BlackRock's latest ventures show the evolving landscape of digital assets and the growing intersection between traditional finance and blockchain technology.\
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Surge in Onchain Activity Drives Ethereum and Layer-2 Blockchains in 2024
The year 2024 has witnessed a remarkable increase in onchain activity, with blockchain networks such as Ethereum experiencing significant growth in user base and other key metrics. A recent Q3 report by Coinbase Institutional and Glassnode highlighted a 127% surge in the average number of daily active addresses across Ethereum and major layer-2 (L2) blockchains in the first half of the year.
Layer-2 (L2) blockchains, built atop the Ethereum network, are designed to enhance transaction processing speeds while minimizing network commissions and fees for Ethereum, also known as Layer 1. These L2 solutions enable low-cost transactions to be validated on parallel blockchains before being transferred to the main Ethereum blockchain for immutable recording. This setup ensures both efficiency and security, making it an attractive option for users and developers alike.
Data from the Ethereum analytics platform Growthepie identifies Linea, Base, and Arbitrum as the top three L2 blockchains, collectively boasting 1.8 million daily active addresses. This rapid growth is indicative of a broader trend: L2s are becoming the "ultimate playing field for action," according to Ethereum co-founder Vitalik Buterin. He noted that these platforms are attracting institutional profit-oriented groups and individuals purchasing assets such as non-fungible tokens (NFTs).
The report from Coinbase and Growthepie reveals that user growth on L2 blockchains has significantly outpaced that on Ethereum. This trend is largely driven by the development of faster and more cost-effective L2 solutions. The number of transactions on Ethereum and L2 blockchains increased by 59% in Q2 2024, with the majority of this growth occurring on L2s.
The surge in onchain activity is fueled by a variety of use cases, including lending, staking, and trading. The report's authors anticipate continued growth in adoption as existing use cases mature and new, innovative applications emerge.
A major development contributing to the increase in transactions is Ethereum's Dencun upgrade, implemented in March 2024. This upgrade significantly reduced transaction fees, leading to a 58% drop in total transaction fees on Ethereum in Q2 2024 despite the rise in the number of transactions. This reduction in fees makes Ethereum more accessible and appealing to users, further driving onchain activity.
Bitcoin’s Decline in Onchain Activity
In contrast to Ethereum's growth, Bitcoin has seen a decline in onchain activity. The report indicates that the average number of daily active Bitcoin addresses fell by 20% in Q2 2024, while the average number of daily active entities decreased by 16%. This decline suggests a shift in user preference and activity from Bitcoin to more dynamic and versatile platforms like Ethereum and its L2s.
The rapid growth of onchain activity on Ethereum and its L2s demonstrate the evolving landscape of blockchain technology. As these networks continue to develop and introduce new upgrades, their adoption is expected to increase further. The continuous innovation and enhancement of L2 solutions will likely attract more users and developers, solidifying Ethereum's position as a leading blockchain network.
The first half of 2024 has been a transformative period for Ethereum and L2 blockchains, marked by substantial growth in user activity and transaction volume. The advancements in L2 technology and Ethereum's upgrades have created a robust and efficient ecosystem, paving the way for broader adoption and new opportunities in the blockchain space. As the year progresses, it will be interesting to observe how these trends evolve and shape the future of decentralized finance and blockchain technology.
Newly Approved Spot Ethereum ETFs Experience Strong Start Despite Lack of Staking Income
In a related development, the cryptocurrency market saw a flurry of activity this week with the debut of eight newly approved spot Ethereum ETFs. These ETFs launched to an enthusiastic response, even though they lack a feature closely associated with Ethereum's native token: staking income.
The Grayscale Ethereum Trust (ETHE), which has transitioned from a non-ETF form to an ETF, experienced significant outflows amounting to about $811 million. Despite this, the newly introduced products from prominent financial institutions, including BlackRock, garnered nearly $800 million in deposits within just the first two days.
Initially, several issuers had planned to incorporate staking for yield into their ETF offerings. However, they had to revise their plans following guidance from the U.S. Securities and Exchange Commission (SEC). The SEC advised against including staking, citing concerns that it could potentially violate federal securities laws by constituting unregistered securities offerings. This regulatory stance was clear, as evidenced by the SEC's previous arguments in other cases.
Future of Staking in ETFs
With a new administration set to take office in January, there is cautious optimism among issuers that the regulatory environment could change, potentially allowing staking to be included in future ETF products. However, Rob Mitchnick, head of digital assets for BlackRock, stated in a recent interview that staking is not currently an active discussion. The SEC has made its position on the matter clear.
BlackRock, the world's largest asset manager, did not initially seek to include staking in their application. Other firms, such as Fidelity and Franklin Templeton, had planned to offer staking but had to adjust their strategies. Cynthia Lo Bessette, head of digital asset management at Fidelity, emphasized the importance of staking within the Ethereum ecosystem, highlighting its role in securing the network and enhancing the investment experience.
Nate Geraci, president of the ETF Store, believes that the inclusion of staking within spot ETH ETFs is a matter of "when, not if." He acknowledged that political factors significantly influence the timeline, noting that a more crypto-friendly administration could expedite the process. He also pointed to indications that a Trump administration might be more supportive of cryptocurrency, potentially accelerating the timeline for staking approvals.
For Franklin Templeton, beginning without staking was a strategic decision that simplified the approval process. Christopher Jensen, director of digital asset research for Franklin Templeton's Digital Asset Investment Strategies Group, explained that launching with an unstaked version was the path of least resistance. It offered a simpler, lower-risk way to enter the market.
David Mann, head of ETF product & capital markets for Franklin, highlighted that the future inclusion of staking depends heavily on regulatory clarity. As the regulatory framework evolves, Franklin Templeton is prepared to adapt its offerings accordingly.
BlackRock’s Ambitious Moves in Ethereum: A Deep Dive into the iShares Ethereum Trust ETF (ETHA)
Multitrillion-dollar investment giant BlackRock has demonstrated its significant plans for Ethereum (ETH) through the recent launch of its spot ETF product. In a remarkable show of investor confidence and institutional interest, the iShares Ethereum Trust ETF (ETHA) amassed a total of 77,000 ETH, worth approximately $277 million, within just two days of hitting the market, according to data from Lookonchain.
BlackRock's growing interest in Ethereum follows its strategic foray into the cryptocurrency market a few years ago, positioning itself as a major spot Bitcoin and Ethereum ETF issuer. Currently, BlackRock is recognized as the most successful Bitcoin ETF issuer, with its total Bitcoin holdings surpassing those of its top rivals. As of the latest data, the iShares Bitcoin Trust (IBIT) holds 337,035.76700 BTC, significantly outpacing Michael Saylor’s MicroStrategy Incorporated by at least 100,000 BTC.
According to Lookonchain, BlackRock received 76,669 ETH valued at $262.4 million from Coinbase Prime just hours before the data release. This substantial acquisition was part of a broader strategy to solidify BlackRock’s presence in the Ethereum market. Subsequently, the BlackRock Ethereum ETF page reflected holdings exceeding 84,850 ETH, reinforcing BlackRock’s trajectory towards becoming one of the largest Ethereum holders in the Web3 ecosystem.
BlackRock's Impact on Ethereum and Web3
Recently, BlackRock reached a monumental $10 trillion market capitalization, a feat partially attributed to the success of its spot Bitcoin ETF product. This robust market position, coupled with a vast and diverse customer base, has the potential to significantly benefit Ethereum. However, despite the impressive early performance of the spot Ethereum ETF, this enthusiasm has not yet translated into a direct price increase for ETH.
BlackRock’s extensive accumulation of Ethereum signals a longer-term strategy that could drive the resurgence and sustained growth of ETH. The firm’s ability to attract and manage large-scale investments in its ETF products suggests that its continued involvement will likely have a stabilizing and potentially elevating effect on Ethereum’s market position.
Cynthia Lo Bessette, head of digital asset management at Fidelity, and other industry leaders have emphasized the importance of staking within the Ethereum ecosystem. As BlackRock continues to grow its Ethereum holdings, the integration of staking capabilities could further enhance the investment experience and security of the Ethereum network. However, this remains contingent on evolving regulatory landscapes and approvals.
The regulatory environment will play a crucial role in determining the future of Ethereum ETFs and their features. BlackRock, along with other major financial institutions, remains hopeful that changes in administration and regulatory clarity will eventually allow for the inclusion of staking and other advanced features in their ETF products.
