ETFs have revolutionized investing by providing low-cost diversification. From this year on, cryptocurrencies have followed suit. The SEC’s preliminary approval of spot-based Ethereum ETFs marks a watershed moment, allowing trade beginning July 23rd. Industry heavyweights like BlackRock, VanEck, and Franklin Templeton spearhead this shift. Others like Fidelity and Grayscale eagerly await their turn for approval, giving investors regulated access to Ethereum.
As the second largest cryptocurrency, Ethereum offers promising potential. Katherine Dowling, CCO at Bitwise Asset Management, predicts these spot ETFs could rapidly accrue significant assets under management in 2024. All eyes now turn to whether Spot Ether ETFs can compete with the traction of Bitcoin ETFs.
Spot Ether ETF vs Bitcoin ETF
Bitcoin ETFs, especially futures-backed instruments, marked a pivotal turning point in October 2021 with the SEC approval of the ProShares Bitcoin Strategy ETF. This ETF provided indirect Bitcoin access through derivatives, permitting mainstream investors to gain crypto exposure despite the complexities inherent to futures markets.
Since debuting, Bitcoin ETFs have seen explosive growth yet navigated intricacies like tracking errors and price disconnects. Alternatively, preliminary-approved Spot Ether ETFs proposed a more straightforward approach by tracking Ethereum’s spot price.
Bitcoin ETFs and emerging Spot Ether ETFs created regulated routes for cryptocurrencies to enter traditional financial custody. Their availability increased adoption amongst traditional investors by lowering barriers. Nonetheless, divergences existed as Bitcoin products contended with heightened risk in unstable futures domains while Spot Ether alternatives proposed transparent risk directly correlating to ETH’s stability despite inherent crypto volatility. Bitcoin ETFs are often vulnerable to contract terms, sometimes distorting prices relative to spot benchmarks.
Spot Ether ETF has a rather tolerant risk profile that would straightforwardly track Ethereum’s market price. Regulatory landscape differences also exist; Bitcoin ETFs navigated overlapping CFTC and SEC regulations, whereas Spot Ether ETFs underwent stringent SEC reviews concerning safekeeping, market manipulation, and pricing visibility. Though Bitcoin ETFs pioneered the path, Spot Ether ETFs represent an innovative chapter appealing to investors prioritizing direct Ethereum holdings. Their entrance signals evolving regulatory acceptance and a new phase for indexed crypto investments.
Experts bullish on ETH ETF: Ethereum ETFs might topple Bitcoin ETFs
The recent spike in the price of Ethereum has been partially based on the speculation that Ethereum ETF might take over Bitcoin ETF’s dominance on the market, leading to experts’ analysis of the asset’s position. For instance, Mike Novogratz, Galaxy Digital’s CEO, noted that sentiment in Washington has shifted drastically, and he believes politically motivated changes could cause the Ethereum ETF to undergo a ‘seismic shift’ that could drive the price of the upcoming asset much higher than Bitcoin’s, resulting in an intense competition within the ETFs.
ConsenSys co-founder Joe Lubin expressed his optimism that the approval of the Ethereum ETF will trigger a “floodgate” for ETH’s demand, which could possibly lead to supply shortages and rising prices. He also pointed out that institutions already invested in Bitcoin ETFs would allocate resources to Ethereum ETFs, driving demand and positioning Ethereum ETFs in solid competition with Bitcoin ETFs.
According to Bitwise’s Head of Investment, Matt Hougan, one of the critical drivers of Ethereum ETF’s prophetic success is that digital assets have entered the mainstream. He illuminated a fresh bipartisan proposition on Capitol Hill that embraces cryptocurrency, which can function as a seminal turning point for Ethereum ETF—advancing in lockstep with Bitcoin and generating comprehensive societal belief. “What you’re seeing is this sort of the birth of a new asset class,” he said to CNBC reporters.
The co-founder of Swarm, Timo Lehes, boldly projected that Ethereum would exponentially mushroom one thousandfold as economic passions migrate from the originator Bitcoin to the fledgling young upstart ETH. He deduced this would bolster Ethereum’s evaluated worth—even if contributions are less bountiful than those of a Bitcoin ETF—and transform those vehicles into formidable challengers.
Encouraged by Bitcoin ETF approvals driving record-setting price jumps in the past, Bernstein analysts Gautam Chhugani and Mahika Sapra predict that once approved, Ethereum will likely skyrocket nearly 75% higher to a value of $6,600. They anticipate a positive future similar to Ethereum’s, with a rise in investor demand and trading volume, thus emphasizing the rivalry between Bitcoin ETFs and Ethereum.
While caution was recommended, Adam McCarthy of data provider Kaiko highlighted that similar exposure ETFs in Hong Kong had seen uneven demand levels. He pointed to conceivable outflows in Grayscale’s ETH product as a rationale that prices might decline. He noted that options to stake investments would be “pivotal” in adopting Ethereum ETFs when placed next to Bitcoin.
Supply crunch and record-high prices on the way?
Ethereum ETFs could be approved very soon and thus deliver a major supply shock, which would drive up prices for ETH. The demand for data on a long-tail basis is expected to experience what Lubin called a “floodgate”, which will likely exceed the supply of tokenized services and drive higher prices. On top of this, much ETH is locked in staking already and being used on a host of decentralized finance (DeFi) applications, so supply will also be taken off the market.
Like the response to Bitcoin ETFs, banks were so eager for Bitcoins that they petitioned large mining companies about significant purchases of miners. Considering the already scarce supply of Ether, ETH might reach a new all-time high after July 23rd. However, prices might topple down if liquidation rises. As of July 16th, 276 million wallets are ‘hodling’ ETH.
Even if 10% of these wallets decide to sell, the price will fall significantly by a great amount as well, even when spot ether ETF is launched. Beyond the certainty of a liquidity event for ETH, approval for Ethereum ETFs would be significant because it represents a regulated and more easily accessible way to invest in Ether that will attract new investors. While it is hard to determine if Ether will take over Bitcoin, the competition will be fierce.