ETFs: US Securities and Exchange Commission clears way for digital money funds

ETFs: US Securities and Exchange Commission clears way for digital money funds

The approval of Bitcoin ETFs at the beginning of the year triggered a price rally for the cryptocurrency. Now the US Securities and Exchange Commission has also given the green light for the second most important digital currency, Ether.

The US Securities and Exchange Commission (SEC) has basically cleared the way for exchange-traded funds (ETFs) in the cryptocurrency Ether. On Thursday, the SEC allowed the technology exchange Nasdaq and the New York Stock Exchange, among others, to trade financial products based on the Ethereum database (blockchain).

In order to set up such funds, interested providers such as Blackrock and Fidelity still need individual approval from the authorities, according to an SEC announcement. No deadline has been set for this at this point. They have already been approved for the best-known digital currency, Bitcoin, since January.

The approval of Bitcoin spot ETFs was already seen as an important milestone in opening up digital currencies more to traditional investors. Investing in such funds instead of directly in crypto money is a lower hurdle for many investors.

Ethereum and Bitcoin

Ether is the second most important digital currency after Bitcoin. Bitcoin was created as an alternative to conventional money and serves primarily as a digital store of value. Ethereum, on the other hand, is not just a cryptocurrency. It is an open source platform for creating and implementing digital contracts (“smart contracts”) and decentralized applications. Legally speaking, Bitcoin is a commodity like gold. However, the SEC considers Ether to be more of a security because when validating transactions (“stalking”) on the Ethereum blockchain, market participants deposit a certain number of Ether as collateral and receive a kind of dividend in return.

The SEC under its head Gary Gensler is already rather skeptical about cryptocurrencies and has resisted allowing spot ETFs for years. It did not give the green light to Bitcoin in January entirely voluntarily. Last year, the regulator suffered a defeat in court after rejecting an application from Grayscale. An appeals court found that the decision was arbitrary because the SEC did not clearly distinguish it from other permitted investments. ETFs on Bitcoin futures contracts had already been approved in 2021.

Market in Europe

Bitcoin and Ether ETFs will not be available in Germany because current law does not allow ETFs that are based on a single underlying asset. However, there are already several exchange-traded cryptocurrency products for investors in Europe, so-called exchange-traded products (ETPs), which are legally different from ETFs but function in a similar way to ETFs.

The eagerly awaited SEC decision led to large price increases in Ether last week. On Friday, the price was still around 20 percent higher week-on-week, although profit-taking recently caused a drop of around minus three percent. Since the beginning of the year, Ether has gained around 56 percent against the US dollar. Bitcoin is up almost 52 percent in the same period. However, cryptocurrencies are notorious for strong price fluctuations, which is why consumer advocates generally do not recommend them as an investment.

Source: Stern

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