ETFs and Web3: Understanding the Landscape

As many have seen, the SEC has approved the first spot Bitcoin exchange traded funds (ETFs) in a groundbreaking decision which could shake up the cryptocurrency market by bringing new investors into the market. The SEC cleared 11 ETFs to list, with sponsors ranging from known investment firms such as Fidelity and Invesco to digital-focused organizations like Grayscale and Ark Invest.

To further explore how ETFs may affect NFT domains, I sat down with Gian Pastore, Web3 Manager at Loeb & Loeb LLP, to discuss his thoughts on the matter. Gian is a technical subject matter expert, specializing in blockchain technology, rather than a licensed attorney.

Shane Layman: Gian, what does this mean?

Gian Pastore: A spot bitcoin Exchange Traded Fund (ETF) directly tracks the value of bitcoin and trades on traditional market exchanges, such as the NYSDAQ and the NYSE, rather than cryptocurrency exchanges. The fund is backed by significant bitcoin holdings which are held by the designated custodian of the fund.

This also opens up new avenues for investment in bitcoin; individuals with 401(k), IRA and similar retirement accounts may now be able to invest via an ETF.

Shane: Where does this put cryptocurrency in today’s market?

Gian: It’s hard to say for certain, but in my opinion now that a spot bitcoin ETF has been approved, investors who were previously hesitant may now test the waters of cryptocurrencies by investing in these ETFs. For most, I think this will lead to increased interest and the eventual desire to buy bitcoin and other cryptocurrencies directly.

Additionally, improvements such as Account Abstraction and Cross Chain Interoperability Protocol (CCIP) which look to solve some of the complications associated with cryptocurrency wallets and blockchain interoperability will provide a much smoother transition for newcomers to crypto and Web3.

Shane: Will we see more interest in Web3 ventures?

Gian: I believe so, but when is the real question. Many people continue to regard Web3 as a passing trend, often lacking a full understanding of the foundational security mechanisms inherent in blockchain technology.

Brands are playing a role in Web3 adoption, with many well-known brands stepping into Web3 via loyalty programs and token-gated events and product launches over the past 18 months.

In my eyes, the next big hurdle is regulatory clarity. Brands and investors alike are looking for the SEC to provide a clear delineation of securities within the realm of cryptocurrencies. Once that happens, I think we will see a positive shift in interest.

How will ETFs affect Web3 and NFT Domains?

Now what this will do for the NFT Domains market is still unclear.

While only bitcoin ETFs have been approved, it’s now more likely than ever an Ethereum (ETH) ETF is approved and when it does the activity in the .eth marketplace could skyrocket.

More investment into the cryptocurrency space could see new marketplaces, or “registries,” pop up that will allow tokenization of NFT assets tied to the Bitcoin cryptocurrency. Potentially we’ll see a shift allowing Ethereum blockchain based NFT domains to be minted and traded on the Bitcoin blockchain, or on forks of the Bitcoin blockchain.

What we do know is that this will be a major shift in the cryptocurrency market and will bring new interest into the space, and therefore into NFT domains.

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