What can we expect after an Ethereum Spot ETF approval?
The US Securities and Exchange Commission (SEC) is finally set to debut Ethereum spot ETFs, marking another significant milestone for cryptocurrency investments.
The launch, initiated by VanEck's filing in September 2023, mirrors the anticipation surrounding Bitcoin spot ETFs, which significantly influenced market dynamics with a net inflow of approximately $16.27 billion by July 17, following their introduction in January 2024.
Ethereum, notable as the first Proof of Stake token, has been at the center of debates over its classification as a security or commodity—a critical factor influencing its ETF approval. Unlike Bitcoin, which SEC Chairman Gary Gensler confirmed as not a security, Ethereum's classification remains unclear, prolonging the approval process.
If successfully approved, it could set a precedent, encouraging ETF applications for other cryptos with similar functionalities, with Solana already gaining interest.
This also aligns with the interest of major entities like BlackRock. Under CEO Larry Fink’s leadership, BlackRock has been a vocal proponent of Ethereum ETFs, emphasizing their potential to revolutionize financial markets through advanced tokenization strategies.
BlackRock has also ventured into real-world asset (RWA) tokenization, partnering with Securitize to launch the BUIDL fund on Ethereum. This indicates a broader strategy to integrate blockchain technology into traditional financial structures. Approval of Ethereum ETFs could thus enhance BlackRock's RWA initiatives, as many are built on the Ethereum network, potentially steering significant capital into the crypto sector and advancing a more integrated financial ecosystem.
Will we see Ethereum at $9,000?
Since the approval of its spot ETF, Bitcoin has seen a 75% increase in value. This surge was accompanied by an impressive $16.27 billion inflow into Bitcoin spot ETFs.
Similarly, the introduction of Ethereum spot ETFs is set to bring considerable liquidity into the market. However, the extent of this influx and its effect on Ethereum's price remains to be seen.
Ethereum’s Grayscale Trust (ETHE) could face substantial outflows, much like Bitcoin's Grayscale Trust did during its ETF conversion. If ETHE's outflows align with GBTC's initial 54.2% reduction, it could lead to a monthly loss of approximately 319,000 ETH, valued at around $1.08 billion. However, ETHE might face less market pressure than GBTC, given its smaller market share.
Staking, a key feature for earning returns on the Ethereum network, involves about 27.74% of all Ethereum. However, new Ethereum spot ETFs, including one to be issued by BlackRock, will not include staking. This could limit their appeal, as staking is a significant draw for investors.
Ref: https://dune.com/hildobby/eth2-staking
Historical data also indicates that Ethereum ETFs may not draw as much investment as Bitcoin ETFs. For instance, upon their debut, Ethereum futures ETFs garnered only $1.7 million in trades, significantly less than Bitcoin ETFs.
This trend is mirrored in Hong Kong's market, where Ethereum spot ETFs’ net asset value is $43.72 million, only 13.91% of BTC spot ETF’s $314.28 million.
Despite these challenges, some industry experts remain optimistic about the potential of Ethereum spot ETFs. Joe Lubin, co-founder of Ethereum and founder of ConsenSys, anticipates significant demand, noting that institutions that have invested in Bitcoin ETFs are likely to diversify into Ethereum ETFs.
Galaxy Research suggests that Ethereum ETF inflows could be about one-third of those for Bitcoin, estimating monthly inflows between $600 million and $1.5 billion in the first five months post-launch. Citigroup's July report echos this view, predicting that Ethereum ETF inflows will likely be 30%-35% of Bitcoin’s.
Geoff Kendrick, Standard Chartered Bank Head of FX Research and Digital Assets Research, expects Ethereum spot ETFs to drive between 2.39 million and 9.15 million ETH in inflows during the first year, translating to about $15 billion to $45 billion in assets. He also forecasts Ethereum could reach a price of $8,000.
In our July 16 market overview, we forecasted Bitcoin to hit between $100K and $150K during this bull cycle, depending upon market conditions. With the approval of Ethereum spot ETFs, Ethereum may have the potential to approach or exceed its highest historical exchange rate against Bitcoin, potentially nearing a price of $9,000. These projections are based on current trends and market dynamics, which are subject to change due to various influencing factors. As always, we recommend that investors consider a range of outcomes and perform their own due diligence.
Sectors that can attract attention following the approval
1. Memecoins: Known for their viral nature and community-driven appeal, memecoins have been a highlight of this bull cycle alongside Bitcoin spot ETFs. Ethereum and Solana, potential candidates for new ETFs, are primary platforms supporting memecoins, enhancing their visibility and speculative interest.
Ref: https://coinmarketcap.com/view/memes/
2. Layer 2: These platforms, which aim to address scalability and speed issues on the Ethereum network, could become more attractive to investors looking for technologies that enhance blockchain efficiency.
Ref: https://coinmarketcap.com/view/layer-2/
3. Restaking: Although the newly approved Ethereum ETFs do not feature staking options, the wider staking ecosystem, especially platforms offering restaking services, could attract market attention. This sector is attracting investors interested in yield-generating opportunities within the cryptocurrency space.
Ref: https://www.coingecko.com/en/categories/restaking
4. RWA: BlackRock has actively supported both Ethereum spot ETFs and the integration of RWAs. The approval of ETFs is expected to expand the regulatory framework, encouraging the tokenization of physical assets. This could lead to greater trust and adoption of blockchain technology in traditional financial markets.
Ref: https://www.coingecko.com/en/categories/real-world-assets-rwa
5. SOL: The approval of Ethereum spot ETFs could benefit Solana by setting a regulatory precedent that may facilitate the approval of Solana-based ETFs. Solana's platform, known for its high throughput and efficiency, is also a favored environment for memecoins.
Ref: https://coinmarketcap.com/view/solana-ecosystem/
Disclaimer
The price projections mentioned in the above content are speculative and based on market analysis at the time of writing. These projections should not be interpreted as guaranteed outcomes. The figures stated ($100K-$150K for Bitcoin and $9,000 for Ethereum) are hypothetical and intended for illustrative purposes, reflecting potential market scenarios under certain conditions. Market conditions can fluctuate widely and unpredictably due to numerous factors such as regulatory changes, market demand, and global economic developments.
The information provided in this article is for general informational purposes only and does not constitute financial, investment, legal, or professional advice of any kind. While we have made every effort to ensure that the information contained herein is accurate and up-to-date, we make no guarantees as to its completeness or accuracy. The content is based on information available at the time of writing and may be subject to change.
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Cryptocurrencies involve significant risk and are NOT suitable for the majority of investors. The value of digital currencies can be extremely volatile, and you should carefully consider your investment objectives, level of experience, and risk appetite before participating in any staking or investment activities.
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