(Kitco News) – Ethereum (ETH) is back in the headlines as the U.S. Securities and Exchange Commission (SEC) finds itself scrambling to provide guidance to spot Ether exchange-traded fund (ETF) applicants after months of stonewalling.
The about-face comes as crypto has become a trending topic in the upcoming U.S. elections, with Democrats attempting to avoid alienating a large portion of the voter base after Trump came out full-force with a pro-crypto stance.
But it’s not just Ether ETFs that have bolstered the outlook for ETH in 2024 as the network has undergone several upgrades, including the Dencun hard fork, which helped lower the cost to transact on Ethereum layer-two (L2) protocols, an issue that was a major pain point for the network and remains a problem for transactions that take place directly on Ethereum layer-one.
To gain insight into the latest developments for the second-ranked crypto by market cap, Kitco Crypto spoke with Jonathan Thomas, CEO and co-founder of Blueberry Protocol, a DeFi platform that provides a non-custodial prime brokerage experience.
According to Thomas, Blueberry is working to make onboarding into DeFi easier for individuals and institutions as the world moves toward the widespread integration of blockchain technology into various facets of society.
The conversation took place prior to the SEC’s about-face on Ether ETFs, and at the time, Thomas said “the SEC has made it abundantly clear that they have no problem taking their time with crypto approvals. While I’m hopeful that an Ether ETF approval may be on the horizon, I don’t think anyone can say with absolute certainty what the outcome will be.”
It turns out that his hope has come to fruition, as Barron’s reported that on Monday, the staff at the SEC told the exchanges where the products would be listed that it is leaning toward approving them, according to X user DB.
“The agency provided comments on the applications that, if resolved in time, could result in approvals as soon as this week,” DB said.
Addressing the recently launched Bitcoin (BTC) and Ether ETFs in Hong Kong, the effect they will have on the market, and whether they would offer a way for Chinese investors to reengage with cryptos, Thomas said that “Anytime investors can get more access to crypto it will have a positive impact on the ecosystem, but it is important to remember that the ETFs still aren't available in mainland China.”
That said, he noted that “the Hong Kong market will inject new liquidity and it will likely have a compounding effect on increasing attention globally.”
Dencun upgrade
Thomas said he is “cautiously optimistic regarding the effects of the Dencun upgrade on the Ethereum ecosystem.”
“The decrease in transaction fees has enhanced Ethereum's accessibility and efficiency for both users and developers, potentially fostering increased adoption and innovation within the ecosystem,” he said. “I view the Dencun upgrade as a positive development that strengthens the Ethereum ecosystem's overall health and growth potential, presenting new opportunities for projects to flourish.”
Institutions and DeFi
As the conversation moved to the evolving crypto landscape, the arrival of institutional investors, and how traditional finance (TradFi) and decentralized finance (DeFi) will merge in the coming years, Thomas noted that “Non-custodial prime brokerage services are vital in the current crypto environment, particularly with the growing awareness driven by ETFs and the heightened interest from major funds such as pensions.”
“These services offer institutional investors access to crypto markets while ensuring asset control, and addressing security, regulatory, and risk management concerns,” he said. “As institutional involvement expands, these brokerage services become increasingly essential for facilitating secure and efficient trading, liquidity provision, and portfolio management within crypto.”
The launch of multiple spot Bitcoin ETFs in the U.S. has opened the door for institutions to start investing in Bitcoin en masse, with Q1 13F filings with the SEC showing that as of May 9, 563 professional investment firms reported owning $3.5 billion worth of Bitcoin ETFs.
As more and more firms wade into the crypto waters, it's only a matter of time before they start to make their presence felt in DeFi, which will really start the ball rolling on changes to the global financial system.
“Institution-led DeFi marks a fundamental change in finance, bringing forth innovation, inclusivity, and democratization,” Thomas said. “This progression stands to benefit both institutional entities and individual retail users.”
“However, maintaining a delicate equilibrium between embracing institutional engagement and safeguarding the fundamental tenets of decentralization, transparency, and user empowerment, which form the bedrock of the DeFi movement, is imperative,” he stressed.
For institutions to properly engage with DeFi, Thomas said “Enhancing regulatory clarity and strengthening DeFi infrastructure are pivotal steps in enticing greater institutional participation in the domain.”
“Presently, the regulatory landscape for cryptocurrencies in the U.S. remains ambiguous, leaving numerous organizations skeptical and perplexed about the legality of their actions,” he said. “By establishing a clear regulatory framework, institutions can gain a sense of confidence in the crypto industry, fostering an environment where innovation can thrive.”
Thomas also said work needs to be done on the development side to ensure the level of demand that is bound to come from institutions can be met.
“DeFi protocols must enhance scalability to meet institutional demand, which can be achieved by being optimization-conscious, utilizing layer-two solutions, cross-chain messaging services, and further enhancements to mainnet will help alleviate congestion on the Ethereum network,” he said. “Additionally, improving composability between DeFi platforms and blockchain networks facilitates seamless asset transfers and cross-chain transactions, catering to institutional investors' diverse portfolio management needs across various protocols and ecosystems.”
One emerging trend that is likely to speed up the process of institutions getting involved with the world of DeFi is real-world asset (RWA) tokenization, which has been gaining steam in recent months as $1.34 billion in U.S. Treasuries have already been tokenized, according to data provided by RWA.xyz.
“RWA is certainly having a huge moment in 2024,” Thomas said. “We’ve seen some incredible use cases in all corners of the industry. For institutions in particular, I’m confident that RWA will help bridge the gap between TradFi and DeFi.”
“Moreover, RWA tokenization empowers institutions to broaden their investment portfolios and enhance risk management by tapping into a wider spectrum of asset classes and global markets,” he added. “Institutions have the capability to tokenize various real-world assets, spanning commercial properties, corporate bonds, infrastructure ventures, and trade finance tools, thereby maximizing returns adjusted for risk and bolstering portfolio durability.”
Stablecoins and a digital dollar
Another necessary factor to speed up cryptocurrency adoption in the U.S. is the passage of stablecoin legislation, which is likely to be one of the first steps the government takes as it moves towards releasing a digital dollar.
“The enactment of stablecoin legislation in the U.S. represents a significant move toward implementing a digital dollar, yet it is just one aspect of the broader rollout,” Thomas said. “Clear regulations for stablecoins are vital for ensuring consumer protection, financial stability, and regulatory compliance, potentially fostering the development and adoption of digital dollar initiatives.”
While stablecoin legislation is an important first step, Thomas suggested that “the success of a digital dollar also hinges on factors like technological infrastructure, alternative structures, and public acceptance.”
