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Good morning everyone,

As of press time, bitcoin is trading around USD69,400 and ether is trading around USD3700. As you can see on the chart below, over the past five days, bitcoin (blue) has risen about 4% while ether (yellow) has rallied more than 20%.

Ether’s price action has been driven by the hope that the US regulator, the Securities and Exchange Commission (SEC), will approve spot ether ETFs this week, with deadlines looming on Thursday and Friday.

As of press time, the SEC's decision has not been announced, but it is fair to say that at this point it is highly likely that it will approve spot ether ETFs this week.

That's a spectacular turnaround, as for months it looked like the SEC would reject spot ether ETFs. As recently as Monday, market participants thought there was only a 10% chance that spot ether ETFs would be approved this month.

But within hours, the odds jumped to 65%.

Bloomberg's ETF analysts increased their odds of approval from 25% to 75%.

What happened?

Earlier this week, the SEC suddenly started interacting with the ETF providers after months of radio silence. This was in stark contrast to the run-up to the approval of the spot bitcoin ETFs in January, where the SEC had been in constant communication with the ETF providers.

So the lack of engagement was seen as a negative. And when the SEC suddenly started interacting with the ETF providers, asking for updates and more information, it was seen as something very positive.

However, the SEC's decision to engage with the ETF providers was so abrupt that it left many people thinking that a decision had to have been made from above, possibly even by US President Joe Biden himself.

In this week's newsletter, I will explore the far-reaching implications behind the spot ether ETFs.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Also, this newsletter contains affiliate links. This means that I may receive a commission from them. But for Crypto Down Under, I only choose products I use myself and can recommend wholeheartedly. Don’t forget to do your own research.

1. Why Democrats used to be against crypto

So far, America's Democrats have been mostly anti-crypto. Their anti-crypto stance was epitomized by SEC chair Gary Gensler and Senator Elizabeth Warren.

Elizabeth Warren famously wanted to build an anti-crypto army. (Whatever that means...)

And Gary Gensler tried to distance himself from bitcoin in the very statement that approved spot bitcoin ETFs.

He basically said that the SEC approves spot bitcoin ETFs, but doesn’t embrace bitcoin itself, because it can be used for illegal activities. (That's like arguing that the US dollar should be banned because it can be used for illegal activities. You can read more about why this argument is nonsensical in this newsletter.)

But in the last few weeks, a couple of things have happened that have caused the Democrats' opposition to crypto to crumble.

2. How Donald Trump changed the Democratic calculus

You can't pick your fans.

Crypto had one of those "you can't pick your fans" moments when the industry was endorsed by Republican Donald Trump, who is running for president of the United States.

Speaking at an industry event in May, he said that if you like crypto, you better vote for Trump.

After the Democrats politicized crypto, it took little political genius for Trump to use the industry as a weapon to attack the Democrats.

A few days later, Trump went even further and began accepting crypto donations for his presidential campaign.

The Democrats' anti-crypto stance backfired. It created a void that Trump was eager to exploit.

The Democrats risked losing voters to Trump because of their anti-crypto stance.

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3. How the banking lobby changed the Democratic calculus

In addition to the pressure on the political front, Democrats also began to feel the heat from Wall Street.

In February, after the launch of the spot bitcoin ETFs, a coalition of bank lobbying groups jointly issued a letter to the SEC opposing something called "Staff Accounting Bulletin No. 121" (SAB 121).

SAB 21 made it virtually impossible for Wall Street banks to hold crypto assets on behalf of clients.

Wall Street banks weren't happy. The record-breaking launch of spot bitcoin ETFs had shown that there was a lot of money to be made in custody of crypto assets. They didn't want crypto-native companies to make all the money.

The Democrats, like every other political party, eventually listened to what the country's banking lobby had to say. In particular, Chuck Schumer, the Democratic Senate Majority Leader, voted to overturn SAB 121. Schumer is a senator from New York, and New York is where Wall Street is based. Wall Street is by far the largest industry contributor to Schumer's campaign.

But Schumer was joined by other Democrats. In May, a group of Republican and Democratic senators and representatives emerged to oppose SAB 121.

Matt Hougan, Chief Investment Officer of Bitwise, called it a historic first.

This week saw continued bipartisan support for crypto.

On Wednesday, the crypto industry in the US scored its biggest political victory to date when the House of Representatives passed a sweeping bill to regulate digital asset markets by a vote of 279-136, with Democrats supporting the bill.

4. How an alliance is emerging between crypto, Washington, and Wall Street

The Democrats' turnaround on crypto and the potential approval of spot ether ETFs this week marks a sea change.

First, it signals that crypto is no longer a political issue. Both political parties in the US now embrace the industry. It has passed the post and won't be attacked because of party politics anymore.

Second, it signals a broader alliance between crypto, Washington, and Wall Street. It's not a perfect alliance, as Wall Street doesn’t care about crypto values of permissionless finance and financial self-sovereignty. But c'est la vie, there are no perfect alliances.

5. What this alliance means for the future of crypto

If the SEC approves the spot ether ETFs this week, they will be approving the entire crypto industry.

The spot bitcoin ETFs in January were different.

Bitcoin is pretty much a standalone asset within the crypto industry. The level of decentralization and security of bitcoin is unparalleled, and bitcoin doesn't have a competitor within crypto. So it's easy to say yes to bitcoin and no to crypto.

But once you open the door to ether, you open Pandora's box. The SEC will have a very hard time arguing why ether gets an ETF and Solana doesn't. And so on and so on. It will only be a matter of time before more cryptocurrencies are wrapped in an ETF mantle.

Structurally, that's very bullish for the entire crypto industry.

In addition, as the world's largest economy and, more importantly, the world's largest capital market, the US will be emulated around the world. The US embracing crypto will send signals to other countries. The ripple effect will be felt everywhere.

Crypto is about to go mainstream on a global scale.

Have a great weekend everyone!

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