Michael Nadeau, founder of The DeFi Report, has published A deep dive into the implications of the approval of ethereum (eth) spot exchange-traded funds (ETFs) on the cryptocurrency's price trajectory. This analysis follows a major regulatory nod from the US Securities and Exchange Commission (SEC), which approved 19b-4 filings for eight leading financial entities: Grayscale, Bitwise, BlackRock, VanEck, Ark 21Shares, Invesco , Fidelity, and Franklin.
These approvals, granted under a class action order on May 23, lay the groundwork for the final steps, which involve waiting for S-1 filing approvals before these spot ETFs can begin trading.
Why ethereum Could Soar to $15,000
The report is based on projections from Bloomberg ETF experts such as James Seyffart and Eric Balchunas, which suggest that inflows into ethereum ETFs could be between 10 and 20% of those experienced by bitcoin ETFs. “The logic behind these projections is based on a few key observations: Currently, there is less institutional interest in eth and it is inherently more complex than btc. Additionally, eth futures ETF volume is considerably lower than btc, ranging between 10% and 20%, and eth spot trading volumes are about half of btc,” Nadeau explains.
He added that “eth is harder to understand than btc. eth futures ETF volume is lower than btc (10-20%). eth spot trading volumes are lower than btc (around 50%). eth represents approximately 1/3 of the market capitalization of btc.”
Related reading
However, according to the researcher, ethereum's dynamics offer a unique perspective compared to bitcoin. “ethereum validators do not incur the significant operating expenses that bitcoin miners incur, which mitigates the structural selling pressure on the asset,” says Nadeau. This difference is critical to understanding the supply-side dynamics of ethereum compared to bitcoin.
Nadeau also delves into the current state of ethereum's on-chain activities. A substantial portion of ethereum, approximately 38%, is effectively “soft locked” through various mechanisms such as staking contracts and DeFi applications. This scenario, as Nadeau notes, “helps reduce the available circulating supply, contributing to a decline in eth balances on exchanges to levels not seen since 2016; currently, this represents less than 11% of the circulating supply.”
The concept of reflexivity in ethereum market behavior also receives significant attention in Nadeau's report. “eth is more reflective than btc. This reflexivity could be expressed with price action leading on-chain activity, leading to more eth burning, which can further drive narratives, more price action, more on-chain activity, and more eth burned. ”explains Nadeau, suggesting a cyclical effect that could significantly amplify ethereum's market presence and valuation.
Related reading
Exploring possible market scenarios, Nadeau questions the extent of rebalancing that could occur from spot bitcoin ETF holders toward ethereum, the appeal of a 50/50 btc and eth allocation, and the potential shift in institutional focus toward ethereum . His hypothesis is: “If momentum hits eth, will we see the 'reflexivity flywheel' get going? How many institutions are on the sidelines right now, having lost btc? Will they go all out for eth?
To conclude his analysis, Nadeau presents a valuation framework that anticipates the cryptocurrency market to reach a market capitalization of $10 trillion. He states: “Given our fundamental views on eth, we believe eth is more likely to exceed Bloomberg's projections of 10-20% of btc net inflows. Under this scenario” and projects that “eth could have a market cap at the peak of the cycle of $1.8 trillion, which would cost eth approximately $14,984 (3.9x), assuming no changes in supply.” He continues: “For reference, if bitcoin reaches a market capitalization of $4 trillion, the price of btc would be $202,000 (2.8 times)” at the peak of the cycle.
At press time, eth was trading at $3,823, still 29% away from its 2021 all-time high.
Featured image created with DALL·E, chart from TradingView.com
