Author: Sidhartha Shukla, Bloomberg; Translated by: Wuzhu, Golden Finance
The first U.S.-launched ethereum cryptocurrency exchange-traded fund is likely to generate far less demand than spot bitcoin products, analysts said, clouding the outlook for the second-largest token.
BlackRock Inc. and Fidelity Investments are among issuers seeking to list Ethereum funds, awaiting final approval from the U.S. Securities and Exchange Commission. Strategists at JPMorgan Chase & Co. expect net inflows into Ethereum ETFs to be far less than the $15.3 billion that has poured into Bitcoin investment vehicles this year.
The five-month-old bitcoin ETF has benefited from a controversial narrative that touts the market-leading coin as digital gold, a narrative that ethereum lacks. The ethereum fund also won’t offer so-called staking rewards for maintaining the blockchain, a return that can be earned by directly holding the token.
“Ethereum doesn’t have the profile of Bitcoin,” said Caroline Bowler, CEO of BTC Markets Pty, adding that Bitcoin’s market capitalization of $1.4 trillion is three times that of Ethereum. “It won’t have the same impact.”
An unexpected turn
The Securities and Exchange Commission (SEC), which reluctantly allowed Bitcoin funds after a court overturned the decision in 2023, unexpectedly pivoted to approving a spot Ethereum ETF last month. The shift has boosted Ethereum’s price, but Ethereum’s 109% gain over the past year still lags Bitcoin’s 169% gain, including its all-time high in March.
JPMorgan strategists led by Nikolaos Panigirtzoglou estimate that prospective Ethereum portfolios will attract “modest” net inflows of $1 billion to $3 billion over the rest of the year. Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, said these products may struggle to capture 20% of U.S. Bitcoin ETF assets, which currently stand at $62.5 billion.
Vetle Lunde, senior research analyst at cryptocurrency specialist K33 Research, is among the bulls, predicting net inflows of $4 billion in the first five months, while a “huge supply absorption shock” should boost Ethereum.
Meanwhile, fund manager VanEck, which is looking to launch an Ethereum ETF, believes the popularity of the token’s underlying Ethereum blockchain in applications such as crypto financial services will benefit the ecosystem.
“Over time, we expect investors to conclude that the potential for adoption and innovation in the Ethereum ecosystem is potentially much greater than that of Bitcoin,” said Matthew Sigel, head of digital asset research at VanEck.
Arbitrageurs exit
Bitcoin prices initially fell on January 11, when nine new ETFs were launched in the U.S. On the same day, the more than a decade-old Grayscale Bitcoin Trust (the largest Bitcoin portfolio at the time) switched from a closed-end structure to an ETF.
After the arbitrageur exits, the arbitrageur profits from the discount between the portfolio unit price and the net asset value, which closes when the portfolio becomes an ETF.
Ultimately, strong demand for the new ETF overshadowed Grayscale’s outflows, and Bitcoin prices continued to rise.
This time, Grayscale Investments LLC intends to convert its $11 billion Ethereum product into an ETF. As was the case with the Bitcoin fund, the net asset value discount has ended and arbitrageurs may leave the largest Ethereum fund. Grayscale did not respond to a request for comment on the product's prospects.
Research firm Kaiko said it was “reasonable” to expect Ethereum to face “selling pressure” from Grayscale fund redemptions once the ETF goes live, but the impact of potential outflows on the overall market was unclear.
Ethereum was trading at $3,847 as of 9:40 a.m. London time Thursday. While Bitcoin could still hit new highs, Ethereum is still some distance away from its all-time high of $4,866 set during the pandemic bull run.
“Global investors have been lukewarm about Ethereum, and for years they have been able to buy it through Europe and Canada,” the ByteTree Asset Management team, including Chief Investment Officer Charlie Morris, wrote in a note.
