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ethereum exchange-traded funds (eth-USD) are expected to begin trading on Tuesday, July 23. The long-awaited launch is set to bring outsized gains to the ethereum price, as many proponents have predicted, although cryptocurrency market traders appear to be underestimating the full impact.
Indeed, by mid-afternoon on Friday, ether (eth-USD) was down 1.3% from a month earlier. But it’s still up 49% year-to-date, amid a broader rally among major token prices. It’s been underperforming relative to its peers in the current cycle, which Seeking Alpha analyst Richard Durant attributed to “competition, scalability issues, or (tighter) monetary policy.”
In May, the U.S. Securities and Exchange Commission approved key regulatory requirements for potential ETF issuers investing directly in ether (eth-USD). But the regulator still needs to approve applicants’ S-1 registration applications for the products to go live. Several investment giants, including BlackRock (BLK), VanEck, and Ark Investment Management, are vying to gain a crucial first-mover advantage in the race to introduce a spot eth ETF.
“The launch of an eth ETF would be a validating boost for the crypto ecosystem at a time when the industry is trying to judge the potential impact of the US elections later this year,” said Darius Tabai, CEO of Vertex and a former trader at Merrill Lynch and Credit Suisse.
Given the uncertainty surrounding both developments, he added, “it appears the market is not fully factoring in the impact of the ETF and we could easily see price gains of over 25% if a spot ETF is approved.”
Since ether (eth-USD) is the leading smart contract platform in the crypto world, any price increase following approval will likely impact the decentralized finance (DeFi) ecosystem more directly, he said. “If the move holds, I would expect a greater potential halo effect for (altcoins) in contrast to the (btc-USD) launch, where alts really struggled to maintain a supply.”
Recall that btc Spot ETFs debuted in the United States in January. Since then, the price of bitcoin (btc-USD) has risen by more than 40%, a move driven in part by strong and persistent (until recently) inflows into such products.
Mara Schmiedt, eth expert and CEO of Alluvial, laid out the key parallels and differences between btc spot and eth launches. “While btc spot ETF inflows hit a larger than expected target of roughly $60 billion (assets under management) in the US this year, we can anticipate eth ETF inflows to reach roughly 30% of the total btc market size, or roughly $20 billion+ at current prices.”
He argued that inflows into eth ETFs could amount to well over $20 billion in the first few months after launch, as they are expected to result in increased price sensitivity relative to btc.
Consistent with Schmiedt’s assessment, funds holding ether, once authorized for trading, will likely attract slower demand than their spot btc peers, in part due to the “lack of an eth staking feature in the ETF,” Bernstein wrote in a June note.
While capital inflows are likely to support the price of ether (eth-USD), capital outflows from Grayscale ethereum Trust (OTCQX:ETHE) could initially put downward pressure on it, South African analyst Durant warned. “A similar dynamic occurred with bitcoin, where there was $6.5 billion of capital outflows from Grayscale in the first month. The fact that ethereum ETFs do not offer staking rewards to investors may also limit their appeal.”
