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Galaxy Digital CEO Mike Novogratz predicted significant changes in the regulatory environment for Ethereum (ETH) staking in the United States. Despite the Securities and Exchange Commission’s (SEC) current stance against crypto staking, Novogratz believes the US will eventually adopt Hong Kong’s approach and approve staking for spot Ethereum ETFs within the next two years.
SEC Maintains Opposition
In an interview at the Consensus 2024 conference, Novogratz highlighted the advantages of staking, noting that investors prefer earning returns on their assets rather than leaving them idle. He predicted that once spot Ethereum ETFs are approved, the SEC would reconsider its position and allow staking for these financial products within 12 to 24 months. This timeline places potential approval for ETH ETF staking between mid-2025 and mid-2026.
Currently, the SEC maintains a strict stance against crypto staking. Last year, a major cryptocurrency exchange, Kraken, had to pay $30 million in compensation and halt staking operations in the US, showcasing this attitude. Additionally, potential US spot Ethereum ETF issuers recently had to remove staking provisions from their applications to secure SEC approval. This indicates that the regulatory body views staking provisions as a significant compliance hurdle.
Potential Risks and Benefits of Ethereum ETF Staking
There is an ongoing debate about the potential risks and benefits of ETH ETF staking. A report by S&P Global addresses both sides of this discussion. On the positive side, institutional participation in staking could diversify the concentration of staked Ethereum, currently dominated by platforms like Lido.
While Lido holds a significant market share of 28%, it is followed by Coinbase with 13% and Ether.Fi with 3%. Institutional participation could potentially reduce the current concentration risks associated with decentralized staking platforms.
However, S&P Global also warns about new concentration risks that could arise if a single entity conducts most of the ETH staking for these ETFs. This could inadvertently centralize the Ethereum network further, contradicting the decentralized nature of Blockchain.
Hong Kong’s Exemplary Approach
Hong Kong’s regulatory approach could set a precedent for the US. Despite lukewarm exits in April, the region plans to approve spot ETH ETF staking. This move is seen as a step expected to increase demand for ETFs.
Although no official timeline has been provided, market analysts predict that this could serve as a positive example for other regulatory bodies, including the SEC.
