US spot ethereum ETFs are set to launch on Tuesday, July 23, with projections indicating potential monthly inflows of $1.2 billion. x.com/asxn_r/status/1814384398277484612″ target=”_blank” rel=”nofollow”>forecast comes from ASXN, a research firm specializing in financial cryptocurrency analysis.
US Spot ethereum ETFs Could Surprise on the Upside
At the heart of ASXN’s analysis is the comparison between the newly introduced ethereum ETFs and the previously launched bitcoin ETFs. One of the critical differentiators highlighted in the report is the fee structure. ethereum ETFs, while mirroring the fee approach of bitcoin ETFs, introduce a notably competitive twist with Grayscale’s new ethereum “mini trust” product. Initially disclosed with a 0.25% management fee, the fee was quickly adjusted to 0.15% after competitive pressures from other low-fee products such as Blackrock’s ETHA ETF.
Grayscale has strategically repositioned 10% of its ethereum Trust (ETHE) assets under management (AUM) into this mini-trust, offering ETHE holders a tax-free swap into the new ETF, a move aimed at retaining capital within its ecosystem and providing a more attractive fee structure for fee-sensitive investors.
“Grayscale’s strategic adjustment of the fee structure and innovative mini-trust offering are likely to redefine the competitive landscape for ethereum ETFs,” an ASXN analyst commented in the report. “This could not only curb potential capital outflows but also attract a broader base of institutional investors due to more favorable fee dynamics.”
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The ASXN report also covers the potential market impact of inflows into ethereum ETFs. Using global data from existing cryptocurrency exchange-traded products (ETPs), the research draws parallels and contrasts between the ethereum and bitcoin markets. Historically, ETPs have been overweighted in bitcoin relative to ethereum based on asset under management indices compared to market capitalisation indices. This has changed slightly with ethereum gaining more traction and investor confidence.
Referring to other research reports on potential ETF inflows, the report notes: “There have been many estimates of ETF flows, some of which we have highlighted below. If we take the estimates and standardise them, we get an average estimate of around $1 billion per month. Standard Chartered Bank gives the highest estimate at $2 billion per month, while JP Morgan is at the lower end at $500 million per month.”
ASXN’s estimate is between $800 million and $1.2 billion per month. “This was calculated by taking a market cap-weighted average of monthly bitcoin inflows and scaling it by the market cap of eth,” the firm notes. They further backed up their estimates with global cryptocurrency ETP data and “are open to an upside surprise given the unique dynamics of ETHE trading at par prior to the launch and introduction of the mini-trust.”
The reflexivity of the eth
In terms of liquidity, the report suggests that ethereum's market dynamics are distinct from bitcoin's. While ethereum's overall liquidity is slightly lower, the impact of new ETF inflows could be more pronounced due to ethereum's lower “float” — the amount of an asset available for trading. “ethereum's liquidity profile, compounded by its lower float relative to bitcoin, implies that capital inflows into the ETF could have a disproportionately positive effect on its price,” the report states.
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Furthermore, ASXN’s analysis focuses on the inherent reflexivity of the ethereum market. According to the report, capital inflows into ethereum ETFs could lead to higher ethereum prices, which in turn could increase activity and investments in the decentralized finance (DeFi) sector and other ethereum-based applications. This feedback loop is supported by ethereum’s tokenomics, specifically the EIP-1559 mechanism that burns a portion of transaction fees, effectively reducing the total supply of ethereum over time.
“ethereum’s market reflexivity extends beyond simple supply and demand dynamics due to its integral role in DeFi and other blockchain-based applications,” ASXN explains, adding: “As the price of ethereum increases, it could significantly improve the underlying fundamentals of DeFi platforms, driving further investment and creating a self-reinforcing cycle of value appreciation.”
The report concludes with strategic perspectives for traditional financial institutions (TradFi) considering investing in ethereum. It argues that the narrative around ethereum as a multi-faceted platform for decentralized applications offers a compelling value proposition beyond the “digital gold” narrative typically associated with bitcoin.
ASXN also speculates on the future potential of a staked eth ETF, which could attract TradFi players with its yield-generating capabilities. “The possibility of a staked eth ETF could become a game-changer, offering traditional finance a way to interact with crypto assets that not only appreciate in value but also generate yield,” the report suggests.
At the time of writing, eth was trading at $3,494.
Featured image created with DALL·E, chart from TradingView.com
