What the SEC’s Approval of an Ethereum ETF Brings to Blockchain Companies

In early 2024, the entire financial world was closely following a dramatic, court-driven, yet truly historic decision for the industry – the approval of the first Bitcoin ETF by the SEC (the US Securities and Exchange Commission). Last week, the SEC also greenlit an Ethereum ETF, highlighting the global trend of growing crypto acceptance by traditional finance players, which comes with its price – regulation. This isn’t just a major development for the US. Various jurisdictions are crafting or implementing comprehensive regulatory frameworks for cryptocurrencies. The EU’s MiCA regulation just recently enforced its 2nd stage in July 2024, and the UK’s phased approach to crypto regulation exemplifies this trend.

The approval of ETFs and the development of crypto regulations lend legitimacy and trust to cryptocurrencies, backed by major financial institutions and regulated by entities like the SEC. Together it is all viewed as steps towards mainstream acceptance of cryptocurrencies. So, where is it all heading, and what does it mean for fintech companies?

Growing Adoption

The central message is clear: crypto assets are here to stay. Until relatively recently, most crypto enthusiasts maintained confidence in a bright decentralized future, despite fears of the strict regulation in the US, major economies like China restricting crypto operations, and huge scandals like the FTX bankruptcy. Now, it is obvious to the entire financial system that crypto assets are getting their place in a global financial landscape.

Crypto assets are becoming safer, and adoption is on the rise—both businesses and individuals are increasingly interested in crypto. The number of cryptocurrency users in the world was estimated at 575 million in November 2023, up from 106 million in 2021. The 2024 report from found that up to 40% of American adults own crypto.

From a business perspective, according to the Cryptocurrency Payments Report by Cointelegraph Research, around 30,000 merchants worldwide accept Bitcoin, including well-known brands that accept cryptocurrencies from customers like Subway, Starbucks, BMW, and Microsoft. However, both businesses and regulators are recognizing that different types of cryptocurrencies (e.g., stablecoins with their unique roles within the crypto ecosystem) may require distinct regulatory strategies. We can see this being showcased by the order of MiCa’s implementation, where stablecoins are clearly defined and regulated first.

New Product Opportunities

This enhanced credibility can make businesses and consumers more comfortable using crypto assets for transactions, potentially boosting its use in everyday payments. These changes are pushing more and more conventional payment providers to launch their own crypto projects. Visa, JPMorgan, and PayPal are just a few of the many working with crypto already. Integration with traditional finance is on the rise: as the gap between traditional and decentralized finance narrows, regulations are evolving to bring crypto assets under similar oversight as traditional financial products.

For fintech companies, this presents exciting opportunities not only to create and offer new financial products that combine the advantages of crypto-assets and traditional financial instruments but also to enhance existing products and develop new solutions for businesses and consumers using blockchain technology. Integrating cryptocurrencies with traditional financial systems facilitates international transactions and opens up opportunities for global business expansion, for example.

For startups, this means they are driven by traditional finance companies to improve their products to remain competitive. Additionally, bigger companies are investing in educational programs for consumers and businesses to raise awareness of the benefits of using cryptocurrencies. That benefits both the industry and the customers.

Growing Fundraising Opportunities

The heightened regulatory engagement signals a maturing market that could foster a more stable and predictable environment, which is crucial for attracting institutional investors. The introduction of crypto regulation also simplifies access to crypto investments, drawing in a broader audience that includes retail investors and large institutions. Major financial institutions, including BlackRock and Fidelity, have filed applications for Bitcoin’s ETF, indicating strong institutional interest. This is anticipated to enhance market liquidity and stability, as ETFs offer better investor protection, increased liquidity, and lower tracking errors compared to other investment vehicles like closed-end funds and trusts.

Raise Entry Barriers

While the existing crypto payment market is expanding, only legal and compliant providers are staying in the market. This, of course, raises the barrier to entry for new crypto startups. A significant development in the crypto payments industry is the implementation of anti-money laundering (AML) and know-your-customer (KYC) regulations, which crypto firms must adopt. This has necessitated more robust compliance measures. There is a growing emphasis on compliance expertise: crypto firms are increasingly hiring experts from traditional finance and regulatory backgrounds to ensure compliance with evolving regulations.

In general, it is becoming more difficult for new crypto startups to enter the market, and their operational costs are also rising. For instance, according to MiCA, crypto firms operating in the EU will need to obtain the necessary authorizations and comply with the relevant requirements, which entails additional expenses and compliance requirements. Running a business now involves not only technology but also significant legal considerations. However, these trends are benefiting the industry as a whole, moving crypto payments from grey areas into a recognized and trusted domain.

Future Challenges and the Path Forward

The big question for crypto regulation that is still yet to be addressed is the growing need for international cooperation and harmonized regulations to deal with the global nature of cryptocurrencies. There is a need to establish common standards and principles for crypto regulation, taxation, and reporting across countries to reduce regulatory arbitrage and provide clarity to market participants.  Given the global nature of cyber threats in the crypto sector, international cooperation is crucial for developing robust cybersecurity measures and regulatory frameworks for crypto exchanges and wallets. 

As it is only natural for any industry to go through stages of rapid growth followed by maturity, we anticipate the emergence of exciting new technologies and companies in the crypto payments industry. With the changing attitude towards the crypto market, it is expected to become safer and grow exponentially.