AB Research Letter May'25
Max Long May
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May 2025
Hindsight
Crypto Value Unlocked
Staked ETH Products
AB Portfolio
Hindsight
In our March research letter, we wrote about crypto looking interesting at $78K BTC / $1.8K ETH. Fast forward 60 days and Bitcoin is up 33% and ETH is up 44%. The section below is appropriate today:
Crypto Value Unlocked
There are many reasons why Ethereum underperformed Bitcoin over the past few years. Among them, a secret war waged by the Biden Administration against the Ethereum Economy. Study Operation Chokepoint 2.0. The SEC shutting down Utah office for. Countless company building on Ethereum sued or hindered by the SEC. Come in and register.
To institutional allocators, this attack was forecasted. They knew the SEC was becoming hostile so they chose Bitcoin or avoided crypto. Digital gold is a successful narrative and the SEC couldn’t attack Bitcoin. It doesn’t do much. A popular trade was long BTC / short ETH. It worked out phenomenally.
The tides have changed over the past four months. Below is Paul Atkins, SEC Chairman, keynote address at The Crypto Task Force Roundtable for Tokenization:
“This movement of securities from off-chain to on-chain systems (onchain) is akin to the transition of audio recordings from analog vinyl records to cassette tapes to digital software decades ago. The ability to easily encode audio in a digital file format, which could readily be transferred, modified, and stored, unlocked tremendous innovation within the music industry. Audio was freed from its boundaries as a static, fixed-format creation. It suddenly was compatible and interoperable across a wide range of devices and applications. It could be combined, broken apart, and programmed to form entirely new products. This also led to the development of novel hardware devices and streaming content business models, greatly benefiting consumers and the American economy.
Just as the shift to digital audio revolutionized the music industry, the migration to on-chain securities has the potential to remodel aspects of the securities market by enabling entirely new methods of issuing, trading, owning, and using securities. For example, on-chain securities can utilize smart contracts to transparently distribute dividends to shareholders on a regular cadence. Tokenization can also enhance capital formation by transforming relatively illiquid assets into liquid investment opportunities. Blockchain technology holds the promise to allow for a broad swath of novel use cases for securities, fostering new kinds of market activities that many of the Commission’s legacy rules and regulations do not contemplate today.”
Another SEC Commissioner Hester Pierce has been putting out SEC memos on how the SEC is apporaching crypto regulation, transparently posting how she understands the new technology, and hosting road tables to hear thoughts directly from crypto industry executives.
Market participants are taking notice and action. Crypto M&A has seen the acquisitions of Bridge, Spindle, Mountain, WonderFi, and Deribit. Coinbase used $700M Cash and $2.2B in stock for Deribit, the benefit of being a public company. Acquisitions give investors confidence that there is a path to exit and allows them to return money to LPs to reinvest.
Coinbase was added to the S&P 500. Crypto made it to the big leagues (for capital). Other companies are noticing where Coinbase generates profit from.
How long until another company in the S&P 500 has a public L2? BlackRock? JPM? Meta? The ability for each L2 to be customizable to the preference of the entity behind it, while also making it extremely profitable with a critical mass of users is a value proposition. The Ethereum value accrual roadmap is working.
More L2s will continue to launch and use Ethereum as a store of value. Look at the value of tokenized assets on Ethereum vs anywhere else.
It is so bullish to read this from the SEC Chairman.
A key priority of my Chairmanship will be to develop a rational regulatory framework for crypto asset markets that establishes clear rules of the road for the issuance, custody, and trading of crypto assets
Crypto M&A is having its moment.
AB Researcher: Whitetail
Staked Ethereum Products
After Ethereum's successful Pectra upgrade, a lot of attention has been on how quickly the SEC will approve ETH staking products in the US.
Part of the reason for this is the Pectra upgrade included a couple EIPs focused on enhancing staking activity. EIP- 7251 which allows for validator consolidation, essentially letting validators stake any amount of ETH between 32 and 2048. This helps large staking operations and the Ethereum network be more efficient and allow for better validator compounding logic when it comes to staking rewards. Another EIP in Pectra made adjustments to the validator queue so entries and exits can be triggered from the execution layer reducing reliance on validator operator's active keys (hot keys).
The other reason for the attention is Grayscale's proposed rule change "review period" to allow for ETH staking is set to end on June 1 with a decision being made by end of October. It was also recently reported BlackRock held a closed-door meeting with the SEC regarding launching their own ETH staking products.
Although Ethereum hasn't seen a massive uptick in net flows toward spot ETH ETFs nor an unprecedented increase in the ETH staking validator queue. There is consolidation of existing validators, so far in just over 1 over 1.5k validators have merged and another 1.2k validators are waiting in the queue. The queue to consolidate these validators will take just over 1 day and 4 hours to process. While it is still the early days of the new "accumulation" validator type (0x02 withdraw credential) it is good to see 9 validators with the max amount of 2048 ETH. Over time I predict we will see a large percentage of validators change to this new 0x02 validator type as more stakers/entities get comfortable with the process.
Even though the SEC only allows for the creation and listing of ETH futures and ETH spot ETFs/ETPs here in the US, there are other exchanges/countries for investors to go for access to Ethereum's staking yield. Some of these are Canada's Toronto Stock Exchange (TSX), Switzerland's SIX Exchange, and Euronext Paris/Amsterdam. Most of the ETH staking ETFs, ETPs, and ETNs are fairly new and have relatively low AUM compared to US ETH spot counterparts. One of those products is CoinShares Physical Staked Ethereum (CETH) which is traded on several European exchanges and comes with a zero expense ratio making it an inexpensive option for investors. 21Shares Ethereum Staking ETP (AETH) has the longest track record of any physical ETH product on the market with an AUM of EUR 362M as of May 2025. Another option is Purpose Investments Ether Staking Corp ETF (ETHC/DTSRF). This vehicle stakes about 50% of the ETH held in the vehicle and generates a staking yield of just over 1%. Other issuers who have products like these on the market are VanEck, ETC Group, Xtrackers, and 1Valour.
Given the fact US issuers are currently trying to push the SEC for Staked ETH approval, existing staked ETH products are already available on other country's exchanges, and the recent network upgrade to make the Ethereum more "institutional-ready”, I believe we will see these products go live in the US within the next 6 months.
AB Researcher: L2 Explorer
AB Portfolio
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