ETH ETF Expectations, Uniswap's Bold Response, Regulatory Evolution Accelerates

• BlackRock's spot bitcoin ETF records the biggest daily inflow since April
• WisdomTree receives approval to list bitcoin and ether ETPs on LSE
• US House passes a market structure bill to regulate the crypto industry

Bitcoin inflows rise, ether ETF expectations build

This week, crypto markets rallied, with the total market cap increasing by 7.5%. Bitcoin's dominance slipped to 52%, as the rally was primarily driven by ether. Among the blue-chip cryptocurrencies, bitcoin posted a weekly gain of 4.3%, while ether stood out with an impressive 23.1% increase compared to the previous week. The US-listed spot bitcoin ETFs saw steady daily net inflows, amassing over $13.3 billion in cumulative net inflows since inception. Notably, BlackRock’s IBIT product recorded over $290 million in inflows on Tuesday, marking its highest one-day inflow this month and the highest since April 5. IBIT’s total holdings have now grown to over $19 billion, according to its product page. In contrast, Hong Kong-listed spot ETFs continued to experience minimal daily flows.

Hopes for a US-listed spot ether ETF were rekindled this week as five potential issuers submitted amended 19b-4 filings following last-minute feedback from the US Securities and Exchange Commission (SEC). The filings included updates from asset managers Fidelity, VanEck, and Franklin Templeton, as well as joint applications from Galaxy and Invesco, and ARK Invest and 21Shares. Notably, Fidelity, Franklin Templeton, and ARK 21Shares removed provisions for ether staking in their amendments. Fox Business reporter Eleanor Terrett highlighted that VanEck’s ether ETF bid was added to the Depository Trust and Clearing Corporation’s (DTCC) website. The DTCC website often lists securities eligible for trading and settlement within its systems, including ETFs that have completed specific registration or compliance processes. However, this listing does not guarantee SEC approval. The SEC must decide on VanEck’s application by May 23. Industry experts anticipate that the regulator will decide on all or most of the applications simultaneously, similar to its approach with spot Bitcoin ETF applications in January.

WisdomTree has received approval from the UK's Financial Conduct Authority (FCA) to list its WisdomTree Physical Bitcoin and WisdomTree Physical Ethereum exchange-traded products (ETPs) on the London Stock Exchange. This approval makes WisdomTree one of the first issuers to have its cryptocurrency ETP prospectus approved by the FCA. The listings are expected to commence on Tuesday, May 28. Alexis Marinof, WisdomTree's Head of Europe, noted that this FCA approval could significantly boost institutional adoption of cryptocurrencies, as many UK-based professional investors have previously faced regulatory barriers preventing them from gaining exposure to bitcoin and other digital assets. 

According to WisdomTree's press release, the ETPs will have a management expense ratio of 0.35%, which is among the lowest for institutional-grade bitcoin and ether ETPs in Europe. This development follows the FCA's March approval for cryptocurrency exchange-traded note (ETN) listings on UK exchanges. However, these ETNs will only be available to professional investors, as the retail access ban remains in place. For listing on the LSE, crypto ETNs must be physically backed, non-leveraged, and provide exposure exclusively to bitcoin and ether. WisdomTree currently offers eight physically-backed crypto ETPs that provide spot price exposure for bitcoin and ether. These ETPs are already listed on the Deutsche Börse Xetra, the Swiss Stock Exchange (SIX), and Euronext exchanges in Paris and Amsterdam.

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Uniswap's bold response, House sets course for regulation

Among the major liquid staking tokens, Lido Finance closely followed ether's performance, posting a weekly gain of 26.2%. In the decentralized exchange (DEX) space, Uniswap led with a 26.3% weekly rally. Uniswap Labs, the company behind Uniswap, has issued a detailed response to the Wells Notice from the US SEC, presenting multiple arguments for reconsidering the legal action. Uniswap Labs emphasized that the SEC's notice assumes all tokens are securities, an assertion contested by Marvin Ammori, the company's Chief Legal Officer. Ammori argued that tokens function as a file format for value and are not inherently securities. He criticized the SEC’s attempts to redefine terms such as “exchange,” “broker,” and “investment contract” to include Uniswap’s activities. Ammori also pointed out that the SEC’s claim that Uniswap’s interface and wallet act as brokers is likely to fail, referencing a recent federal judge’s dismissal of similar claims against Coinbase Wallet.

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Uniswap confirmed its readiness to engage in legal action, highlighting its legal team's success in cases involving Grayscale and Ripple. The company warned that pursuing a case against Uniswap could drive American crypto investors to foreign trading platforms and deter future innovation in the financial and commercial sectors. Uniswap Labs’ response coincides with the US House of Representatives voting on the Financial Innovation and Technology for the 21st Century Act (FIT21), a landmark bill which aims to redefine the regulatory responsibilities of the SEC and the CFTC concerning cryptocurrencies. According to Uniswap, if enacted, this legislation could render the SEC’s case moot, shifting certain enforcement powers to the CFTC.

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The US House of Representatives voted 279 to 136 on Wednesday to pass the Republican-led FIT21 bill, marking the first time comprehensive crypto legislation has been voted on in the full House. The House. FIT21 aims to expand the authority and funding of the CFTC to oversee crypto spot markets and "digital commodities," particularly bitcoin. The bill also establishes a process for the secondary market trading of digital commodities initially offered as part of an investment contract. Additionally, it includes provisions for stablecoins and anti-money laundering measures. Although FIT21 is unlikely to be considered in the Senate this year, it could pave the way for further legislative efforts when the next Congress convenes in January.

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Macro pulse 

Among the TradFi assets, Oil futures dropped by 1.3% compared to the previous week due to concerns about interest rates remaining higher for longer, while US equities remained unchanged. The FOMC Minutes indicated that recent data had not bolstered confidence in achieving the 2% inflation target, suggesting that the disinflation process may be more prolonged than anticipated.. Elsewhere, the 10-year US treasury yields rose by 8 bps and the US Dollar index rose by 0.7% week on week while the Gold & Silver index was flat over the same period.

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*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on May 23, 2024 

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