The price of Ethereum (ETH) has risen over the past 48 hours, driven by favorable regulatory developments that boost the chances of an Ether exchange-traded fund (ETF) being approved soon.
However, the chances of a “buy the rumor and sell the fact” reaction for Ether (ETH) appear to be lower compared to Bitcoin, according to a recent report from Citi.
Bitcoin fell 17% after ETF approval due to hype and leveraged bets. In contrast, the potential approval of the ETH ETF was less expected, resulting in a less extreme prior positioning, the report says.
At the time of these reports, Ethereum futures open interest (OI) and funding rates were low compared to previous months. However, OI has begun to increase, indicating growing anticipation for the potential approval of ETFs.
Net inflows into Bitcoin ETFs have been a major driver of returns since their launch in January, explaining much of the digital currency's performance. This trend is likely to continue with the introduction of ETH ETFs, suggesting that overall flows into crypto ETFs will continue to be important for returns.
Reports indicate that there are robust talks underway behind the scenes between regulators and ETF providers, which include nine fund providers that have applications pending at various stages. Previous approvals of Bitcoin ETFs suggest that simultaneous launches of ETH ETFs are likely.
The price of Ethereum (ETH) has risen over the past 48 hours, driven by favorable regulatory developments that boost the chances of approval for an Ether (ETF) exchange-traded fund (ETF). However, the chances of a “buy the rumor, sell the fact” reaction for Ether (ETH) appear to be diminishing. It looks lower compared to Bitcoin, according to a recent report from Citi.
Bitcoin fell 17% after ETF approval due to hype and leveraged bets. In contrast, the potential approval of the ETH ETF was less expected, resulting in a less extreme prior positioning, the report says.
At the time of these reports, Ethereum futures open interest (OI) and funding rates were low compared to previous months. However, OI has begun to increase, indicating growing anticipation for the potential approval of ETFs.
Net inflows into Bitcoin ETFs have been a major driver of returns since their launch in January, explaining much of the digital currency's performance. This trend is likely to continue with the introduction of ETH ETFs, suggesting that overall flows into crypto ETFs will continue to be important for returns.
Reports indicate that there are robust talks underway behind the scenes between regulators and ETF providers, which include nine fund providers that have applications pending at various stages. Previous approvals of Bitcoin ETFs suggest that simultaneous launches of ETH ETFs are likely.
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Historical data from Citi shows that net inflows into spot Bitcoin ETFs significantly impact cryptocurrency returns. For example, net Bitcoin ETF flows totaled $12.9 billion as of May 20, which translates to a roughly 6% appreciation in Bitcoin per $1 billion in flows. Assuming similar inflows adjusted for ETH's market capitalization, the estimated inflows could range between $3.8 billion and $4.5 billion, which could lead to Ethereum prices rising by 23-28%.
Many factors may affect these estimates, including differing demand for Ethereum compared to Bitcoin, rotation from Bitcoin to Ethereum among existing ETF holders, outflows from existing Ethereum funds upon conversion, and rapid accumulation of positions prior to SEC approval.
In the long term, Citi analysts said Bitcoin and Ethereum are expected to remain highly correlated, driven by macroeconomic factors. Although on-chain activity and potential use cases are different, such as Bitcoin's role as “digital gold” and Ethereum's smart contract functionality, sentiment, adoption, and further development of use cases remain crucial for both digital currencies.
“We expect major cryptocurrencies to remain highly interconnected and macro forces to continue to guide them over the long term,” the Citibank note concluded.