5 things Ethereum ETFs could mean for altcoins.

Ethereum (ETH) price action surprised everyone after the unexpected news that the application process for spot ether exchange-traded funds (ETFs) was moving forward. Most investors resign themselves to the fact that the Securities and Exchange Commission (SEC) will almost certainly reject the applications.

So, while Bloomberg's respected ETF analysts raised their odds from 25% to 75%, ETH experienced a daily price increase that we haven't seen in quite some time. As rumors spread, the price of ETH surged above several support levels, jumping 20% ​​to $3,800.

This welcome – if unexpected – rally shows just how high stakes are with the spot ETH ETF approval. Of course, this means that decentralized finance (DeFi) is much more than a license for Bitcoin ETFs. As BTC ETFs end Bitcoin as an institutional asset, the ETH ETF legitimizes altcoins and propels them into the next bull market rally. Here's what I think will happen if the SEC gives the green light to ETH ETF applications today.

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L2 and DeFi OG lineup

Ethereum Layer-2 includes almost everything Ethereum has to offer, including Optimism and Arbitrage. In fact, when the market increased at the beginning of the week, these tokens saw similar price advances to ETH itself, which recorded a high double-digit percentage price increase. Rollups are now an integral part of the entire Ethereum ecosystem and as such are inextricably linked to its success.

DeFi OGs like Uniswap or Aave represent a play on Ethereum due to their direct connection to EVM technology. These DeFi tokens have done well in the recent market boom and will continue to be used alongside Ethereum, simply because of the legitimacy that ETF permits to build on this blockchain.

Projects that are compatible with EVM will work well

Any EVM-compatible projects and blockchains will do better in a closed ecosystem. This puts the likes of Avalanche and Polygon in a better position than Algorund, which is not yet compatible with EVM.

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Now that we have ETH ETF proof, EVM compatibility will be a bigger concern than it has been in the past few years. That's partly because the ETF's approval provides some regulatory clarity for Ethereum, and partly because it simply creates hype around the world's second-largest blockchain.

Decentralized exchanges and lending protocols FTW

Until now, decentralized finance has struggled to see the desired “mainstream adoption.” It's not particularly user-friendly, it's often unsafe, and the regulators don't like it. But the ETH ETF changes all that. It makes investing in DeFi easier and safer, so we'll start to see the everyday user flock to this space in search of exorbitant returns.

Projects that provide the most practical utility will benefit the most if this happens. For example, it's good news for decentralized exchanges, like SushiSwap or Balance, as well as borrow/lend protocols like Ave and Compound.

L1s like Solana can be lost.

Ethereum's competitors — including Solana (SOL) — may struggle to fare better in the post-ETH ETF environment. The likes of Solana are still at an all-time high this cycle, as the One Place ETH ETF creates some much-needed transparency for decentralized blockchains.

However, with ETH ETF approvals, Ethereum will be the leading blockchain in DeFi. Competitors who were previously considered as “Ethereum killers” will be left behind.

Good news for zk-rollups and RWA tokens

Ethereum has been home to new technological developments such as zero-knowledge proofs, multiple Ethereum L2s, and real-world asset (RWA) tokenization experiments. In fact, BlackRock's tokenized Treasury Fund BUIDL is built on top of Ethereum.

Following the approval of the ETF, we can see more projects being built on Ethereum. Some may migrate from L1s to Ethereum stacks, seeing this as a more profitable development direction – like Celo, which recently decided to migrate to Ethereum using OP Stack.

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With all this growth, we can see new token launches. The growing number of altcoins naturally means growth in DeFi TVL, but it comes with a caveat. More luck often means more risk, and nowhere is this more evident than in the DeFi space. So we can see more fraud, carpet dragging and ultimately huge losses.

For investors, this means upping their safety game and making sure they do their own research before investing in any project, no matter how exciting and new it may seem. Not only this, investors should also avoid getting too excited and too hasty when the market is rallying.

The old adage – buy the rumor, sell the news – is as true in crypto as it is in traditional markets. We fully expect the change we saw in ETH in the coming days or weeks as rumors surrounding the ETF approval come out. This short-term volatility is normal and welcome for a sustained long-term market rally. But a savvy investor avoids making trading decisions based on FOMO and waits until he makes his next move.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.