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.

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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.

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.

Should you buy stock in Ethereum right now?

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

Why Ethereum Jumped 5.8% Today was originally published by The Motley Fool

A majority of S&P 500 stocks were still down, though sector breadth was improving. At one point, all 11 S&P 500 sectors were down. Heading into the final hour of trading, more than half the major sectors were up. Industrials, tech, financials, consumer discretionary, and health care were leading the pack.

The dollar index (DXY00) fell from a 7-week high on Friday and finished down by -0.03%. The dollar gave its advance on Friday on weaker-than-expected US economic news that showed Aug manufacturing production and Aug leading indicators unexpectedly declined. Also, Friday’s -1% fall in WTI crude oil eased inflation expectations and could persuade the Fed to loosen monetary policy, a bearish factor for the dollar.

The dollar initially moved higher on Friday on weakness in the yen, which fell to a 2-week low today. Higher T-note yields on Friday also supported the dollar. The dollar also has carryover support from Wednesday when the FOMC raised interest rates by 25 bp and signaled another rate hike by the end of the year. The dollar fell from its best level after US

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US Aug manufacturing production unexpectedly fell -0.3% m/m, weaker than expectations of +0.3% m/m and the largest decline in 10 months.

US Aug leading indicators unexpectedly fell -0,1%, weaker than expectations of a +0.1% increase and the first decline in 5 months.

Markets are pricing in a 55% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.

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EUR/USD (^EURUSD) recovered from a 7-week low on Friday and finished up by +0.10%. Short covering emerged in the euro on Friday after the dollar index fell from a 7-week high and turned lower. The euro also garnered support after German Aug producer prices rose more than expected, a hawkish factor for ECB policy. Also, ECB President Lagarde’s comments today supported the euro when she said economic growth in the Eurozone is a bit more promising than we thought.

The ECB Aug 1-year CPI expectations rose to +3.0% from +2.9% in July, weaker than expectations of +3.1%. The Aug 3-year CPI expectations rose to +2.9% from +2.7% in July, stronger than expectations of +2.8%.

German Aug PPI rose +1.1% m/m and +4.6% y/y, stronger than expectations of +0.6% m/m and +3.9% y/y, with the +4.6% y/y increase the largest in 3.25 years.

ECB President Christine Lagarde said economic growth in the Eurozone is a bit more promising than we thought, and we’re not seeing second-round effects on inflation yet.

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The markets are discounting a 62% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.

Story Continues