Before the approval of Bitcoin spot ETFs, there was a widespread expectation in the market that the United States Securities and Exchange Commission (SEC) would grant approval because Bitcoin is considered a commodity rather than a security. However, the approval of Ethereum (ETH) spot ETFs this week came as a big surprise to the market. Previously, the market expected that an ETH ETF might be rejected because the SEC's attitude toward applicants was unclear, and there was uncertainty about the classification of ETH: whether it would be treated like BTC as a commodity or as an unregistered security.

Reports suggest that the SEC suddenly shifted towards approval, leading to the immediate approval of Ethereum spot ETFs. This not only exceeded market expectations but could also have far-reaching implications for Ethereum and the entire cryptocurrency industry.

Democratic Division and the Rejection of SAB 121 Proposal

A week before the ETF approval, the U.S. Senate voted on the SEC's accounting proposal, SAB 121. The proposal aimed to impose strict regulations on banks and other institutions holding customer cryptocurrencies but was criticized for potentially hindering companies from holding digital assets, thus negatively impacting the crypto industry. The Senate passed a bill to repeal SAB 121 with a vote of 60 to 38, with several Democratic senators, including Senate Majority Leader Chuck Schumer, diverging from President Biden and Senator Elizabeth Warren, who publicly opposes cryptocurrencies.

This move comes shortly after former presidential candidate Donald Trump explicitly supported the cryptocurrency industry, with his campaign team announcing acceptance of various cryptocurrencies for donations and stating that supporters would "build a crypto army." This stance sharply contrasts with Warren's announcement of an "anti-crypto army" last year.

Political Landscape of the Cryptocurrency Market

Following the FTX collapse, the crypto market went through a challenging period. However, Bitcoin has continued to rise over the past year and a half, and the newly launched Bitcoin ETF has also performed strongly, attracting approximately 230,000 BTC in inflows since its launch. This positioning Trump as a candidate supportive of cryptocurrencies in such a market environment, potentially leading in several swing states, may have pressured the Democratic Party, resulting in a shift in their stance on cryptocurrency issues.

President Biden previously indicated he would veto the bill to repeal SAB 121, and he has until May 28th to sign the bill. If he changes his stance and does not veto, especially after the approval of the ETH ETF, this could signify a significant shift in policy direction.

Passage of the FIT21

Immediately following the repeal of SAB 121, the House of Representatives passed the Republican-led "Facilitating Innovation and Technology Act of the 21st Century" (FIT21). The bill aims to create a clear regulatory framework for cryptocurrencies, transferring more power from the SEC to the more accommodating Commodity Futures Trading Commission (CFTC). The bill passed with 279 votes to 136, showing strong bipartisan support, including 71 Democrats, including former Speaker of the House Nancy Pelosi.

Although FIT21 still needs to be voted on in the Senate and faces multiple reviews and amendments, the House vote marks an important initial step.

Far-reaching Impact of ETH ETF

While the approval of Bitcoin spot ETFs is significant, the approval of Ethereum spot ETFs carries different implications. Bitcoin, as the pioneer of cryptocurrencies, has a stable position and is indisputably regarded as a commodity. Ethereum, on the other hand, is more closely linked to the entire crypto ecosystem, and the approval of ETH ETFs also signifies recognition for other similar blockchain networks, especially those directly competing with Ethereum like Solana and Avalanche.

If the approval of ETH ETFs is politically motivated, this year's elections could accelerate a significant shift from the current anti-crypto faction towards supporting crypto. With one party wavering and the other party strongly intervening in this issue, we may see more turbulence and changes in the future.