21Shares executive discusses ETH ETF launch and market dynamics

ethereum ETFs will finally hit US markets on July 23, 2024, with the approval of the Securities and Exchange Commission.

Since the introduction of bitcoin ETFs in January, excitement around their ethereum counterparts has grown steadily. On their first day, ethereum ETFs generated over $1.1 billion in trading volume.

This initial success has the market speculating about what comes next. Will ethereum ETFs mirror bitcoin’s success? Will we see other cryptocurrency ETFs?

crypto.news had the chance to speak with Federico Brokate, Vice President and Head of US Business at 21Shares, one of the largest cryptocurrency ETF issuers, to get some insights on the topic. Despite being behind bitcoin at launch, Brokate expects ethereum ETFs to see an uptick in adoption in the coming months.

bitcoin ETFs have achieved remarkable success, with $17 billion in net inflows since launch. Considering the relative unfamiliarity with Ether and its different market dynamics, including a smaller market cap, do you expect Ether ETFs to achieve a similar level of success?

The success of bitcoin spot ETFs has been unparalleled, exceeding all expectations driven by adoption from both institutional and retail investors. For ethereum spot ETFs, similar to bitcoin, we expect to see strong demand from all types of investors as well. If we look at other ETF markets around the world, such as the European market for example, what we find is that the asset split between bitcoin and ethereum tends to follow their market cap weighting. This could translate into bitcoin spot ETFs capturing ~70% of assets, while ethereum spot ETFs capture ~30%. What we saw on the first day of trading largely supports this theory: ethereum spot ETFs recorded ~$1B in total volume, which is ~23% of what bitcoin spot ETFs recorded on their first day.

Do you think the launch of eth ETFs was a success?

The ethereum Spot ETF category recorded over $1 billion in volume on its first day of trading, which we consider a very successful day. This demonstrates the demand and enthusiasm that digital asset exchange-traded products generate from US investors. All of the ethereum Spot ETFs in the category ranked in the top decile in terms of first-day trading volumes of all ETFs launched over the past year in the US. This is very impressive for a new product category, given that the launch took place during the traditionally slower summer months. We expect to see more accelerated adoption in the fall period.

ethereum is seen as a technology investment rather than a store of value. How do you think this perception will influence the success and adoption of Ether ETFs compared to bitcoin ETFs?

bitcoin and ethereum are the two largest cryptocurrencies by market cap; however, bitcoin’s value proposition and portfolio fit are better understood by general investors. bitcoin’s value proposition is well-defined as digital gold. It provides investors with uncorrelated returns and serves as a hedge against economic instability. ethereum, on the other hand, is more complex in nature and is akin to an investment in growth equity or technology. In the near term, we see ethereum as a platform for tokenization, stablecoins, and decentralized finance. In terms of adoption, our clients around the world tend to add both exposures to their portfolios rather than replacing one with the other. This is supported by the fact that adding both exposures to a traditional 60/40 portfolio can give investors a superior risk-adjusted return profile. We believe in the disruptive potential of the ethereum platform, and investors will too, as they learn more.

Given that many asset managers have already allocated significant capital to bitcoin ETFs and may have reached their cryptocurrency investment limits, will this affect their enthusiasm and potential investment in Ether ETFs?

The market has proven that digital assets are here to stay, and many wealth managers, particularly investment advisors, have been early adopters of digital asset ETFs. However, we believe that we are still very early in the adoption process by the broader wealth ecosystem and are actually starting to see an acceleration in this regard as they complete their lengthy due diligence process. Adoption by wealth managers will not happen all at once. We will see varying rates of adoption by this cohort, but ultimately we believe that they will be among the largest buyers of digital asset ETFs going forward. Ultimately, we see that the demand is there and we are excited to be able to offer investors in the US market exposure to the bitcoin and ethereum blockchains through the ETF wrapper on a regulated exchange.

Now that another ETF exists, do you think other cryptocurrencies like Solana will be next in line to receive ETF approval? What factors might influence this decision?

21Shares is excited about the prospect of offering our US clients an ETF that provides access to the Solana ecosystem. Product innovation is a core part of our mission to offer easily accessible digital asset products to our clients. We are one of the first issuers to file with the SEC for a Solana ETF and are working with them to bring this product to the US market. We believe that many cryptocurrencies qualify as eligible underlyings for 33 Act ETFs. While the inclusion of a digital asset in a CME futures contract has legal precedent for subsequent ETF approval, it should not be the sole criterion for ETF eligibility. We have an excellent Solana ETF in Europe and look forward to bringing this exposure to our clients in the US, expanding access to crypto as an asset class.