Why Ethereum Jumped 5.8% Today

The Ethereum (CRYPTO: ETH) cryptocurrency is up 5.8% at 2:17 p.m. ET, floating atop a broad surge across the crypto sector. It's the kind of day where you almost expect stablecoins to rise, as the U.S. Securities and Exchange Commission (SEC) moved one step closer to permitting token-based trading of stock-type securities.

And Ethereum would benefit directly if tokenized stocks ever get the SEC's final stamp of approval. The news is a day old, but traders needed time to process the situation after a tumultuous week in which the Clarity Act failed to move forward.

What an "Innovation Exemption" actually does

The SEC is allowing a new kind of venue to trade blockchain versions of regularly listed stocks without first registering as a stock exchange. It's temporary, it's capped, and it comes with strings attached.

This isn't retail investors buying tokenized stocks on a public blockchain tomorrow. It's explicitly a placeholder for further announcements. The tokenized securities venue (TSV) designation is essentially a bold but limited experiment.

TSVs come with a five-year sunset; the public comment period is open; and SEC Chairman Paul Atkins frames them as a bridge to actual rulemaking. In other words, the SEC wants to see how this behaves in the wild before writing permanent rules.

But it is a baby step forward for the general concept of tokenized stock trading. That's good news for Ethereum, because the SEC's order requires that smart contracts used by a TSV run on a public, permissionless distributed ledger. That's a short list, and Ethereum is the clear leader in this space.

Image source: The Motley Fool.

Ethereum's angle

Two caveats before chasing Ethereum down the TSV alley:

• First, this is mostly a round trip. Ether traded near $2,597 before the Senate's Clarity Act vote failed on Sept. 15, and it's barely above that now.
• Second, no TSV exists yet. Volume caps and a five-year expiration make this an option on tokenized equities rather than a solid revenue stream.

That makes Ethereum a bet on being the default settlement layer if tokenized stocks are approved and then scale up to broad adoption. It's a promising but unproven idea, and the SEC is still years from a permanent rulebook.

Don't expect this particular announcement to make a significant difference to Ethereum's fundamental value. This could take a long time, as the five-year policy sunset suggests.

Anders Bylund has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.