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Is ETH's Institutional Era Coming?

Weekly recap: Ethereum ETF on the way? New Crypto accounting rules.
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Sep 9, 2023 • 5 min read

Dear Bankless Nation,

The industry is still waiting anxiously for the SEC to approve a spot BTC ETF, but this week we saw a major firm file for a spot Ethereum ETF as well. Is Ethereum about to get an institutional embrace?

For our weekly recap, we dig into:

  1. ARK files for spot Ether ETF
  2. CFTC goes after DeFi
  3. FTX Digital Markets Co-CEO pleads guilty
  4. Visa expands payments settlement to Solana
  5. Corporate crypto now reported at Fair Value

- Bankless team

📅 Weekly Recap

1. ARK Files for Spot Ether ETF

Asset managers ARK Invest, headed by tech investor Cathie Wood, and 21Shares, the world's largest issuer of crypto exchange-traded products, filed for America's first spot Ether exchange-traded fund (ETF) on Wednesday!

While the Securities and Exchange Commission (SEC) has yet to approve any exchange-traded spot or futures ETH instruments, Bloomberg's ETF team has reported that the SEC is unlikely to block a slew of Ether futures ETFs that could list as soon as October.

This most recent spot ETF filing was likely compelled by Grayscale's victory over the SEC last week. In its decision, the Court found the denial of Grayscale's spot ETF to be "arbitrary" and "capricious." It soundly rejected the SEC's notion that surveillance-sharing agreements used to prevent fraud and manipulation of futures-based exchange-traded products could not be used to avoid the same behavior in spot markets.

Should an Ether futures ETF receive the SEC's blessing in October, approval of a spot ETH ETF would have a similar likelihood of approval as a spot Bitcoin ETF. Bloomberg's analysts currently place the odds of the latter occurring at 95% by EOY 2024. ARK Invest and 21Shares front-ran the BlackRock spot BTC ETF, suggesting we may see traditional asset management shops move to file for spot ETH ETFs in the coming weeks.

While crypto markets rallied on the news, initial gains proved fleeting, and the initial pump was retraced within an hour and a half of the filing, indicating that this story is more likely noise than signal, at least for now.

2. CFTC Goes After DeFi

The Commodities Futures Trading Commission (CFTC) announced it had filed and settled enforcement actions against three separate DeFi platforms late Thursday. Opyn, 0x, and Deridex agreed to pay a combined $550k in fines and cease further violations of the Commodity Exchange Act and CFTC regulations, as charged.

All three protocols are accused of illegally offering leveraged and margined retail commodity transactions using digital assets. Additionally, Opyn and Deridex faced further charges for failing to register with the CFTC and failing to adopt a customer identification program as required by the Bank Secrecy Act.

While Opyn currently geofences US users from the protocol, the CFTC stated these steps needed to be more sufficient from blocking Americans from the platform, likely because it can be circumvented via VPN, and thus does not preclude them from regulatory action.

Concerningly, the CFTC went after 0x for tokens issued by a third party that offered leveraged exposure on digital assets, leading some on crypto Twitter to question whether enforcement actions against other permissionless DEXs, like Uniswap, could be expected to follow… 

This move from the CFTC runs contrary to the decision of a New York federal court to dismiss a class action against Uniswap last week. In it, the Court found that protocol devs are not liable when others misuse their platforms established for lawful purposes and concluded that the concerns raised by this case “are better addressed to Congress than this Court.”

3. FTX Digital Markets Co-CEO Pleads Guilty

Ryan Salame, former co-CEO of FTX Digital Markets, pleaded guilty in federal court Thursday morning to two counts of criminal charges – one concerning campaign finance violations and the other for conspiracy to operate an unlicensed money transmitter.

Prosecutors charged Salame for making tens of millions of dollars in political contributions in his name using funds secretly sourced from Alameda that were categorized as loans, but Salame understood would not be repaid.

Under the agreement, Salame faces up to 10 years in prison and has agreed to a $1.5B asset forfeiture order. Before sentencing next March, Salame must forfeit two properties and a Porsche, returning $5.5M to the FTX debtors and paying a further $6M fine to the US government.

4. Visa Expands Payments Settlement to Solana

Global payments giant Visa announced the expansion of its stablecoin settlement capabilities to Solana last Tuesday.

The partnership will enable Visa to send USDC payouts on Solana to merchant acquirers, like Nuvei and Worldpay, who can then route USDC payments to their end merchants. Solana was selected due to its high performance and ability to send and receive stablecoins at higher speeds and lower costs than competitive chains.

Visa first began testing how it could use USDC inside its treasury operations in a successful 2021 pilot with Crypto.com. The CEX now uses USDC to fulfill settlement on its Visa cards offered in Australia and intends to roll out the capability in other markets.

5. Corporate Crypto Now Reported at Fair Value

On Wednesday, the Financial Accounting Standards Board (FASB), responsible for creating America’s default accounting standards, unanimously voted to require companies with digital assets to record their holdings at fair value.

Under the previous standard, crypto assets received the same treatment as intangible assets. This meant that companies were required to record impairment to the value of their investments should the market value of crypto holdings fall below the recorded book value but could not record gains when the price rebounded.

New rules are expected to be published by the year-end, and adoption will be mandatory for all American companies – public and private – during the 2025 calendar year.

Michael Saylor, the executive chair of MicroStrategy (a sizable corporate holder of Bitcoin), celebrated the outcome of the FASB’s vote, tweeting that the rule update “eliminates a major impediment to corporate adoption of Bitcoin as a treasury asset.”

📺 Bankless Weekly Roll-Up

Other news:

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

Published in Bankless

There’s a revolution in the world of money. Ethereum, Bitcoin, crypto, open finance, DeFi—a bankless revolution. And you want part of it.

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