On Monday, a big news came! According to regulatory documents and announcements from related companies, the US SEC has officially approved the listing and trading applications of Ethereum spot ETFs from multiple companies! Ethereum spot ETFs have come into effect, and 424(b) forms are being released one after another. Now, everything is ready, just waiting for the relevant ETFs to debut at 9:30 a.m. Eastern Time on Tuesday (21:30 p.m. Beijing Time on July 23)!
The first batch of Ethereum spot ETF applicants have made their debut:
The BlackRock Spot Ethereum ETF has a fee of 0.25% (0.12% for the first $2.5 billion or first 12 months) and its ticker is ETHA;
The Fidelity spot Ethereum ETF has a fee of 0.25% (there is no management fee for the whole year of 2024), and the code is FETH;
The Bitwise Spot Ethereum ETF has a fee of 0.2% (0% for the first $500 million or first 6 months) and is ETHW;
The 21Shares Spot Ethereum ETF has a fee of 0.21% (0% for the first $500 million or first 12 months) and the ticker is GETH;
The VanEck Spot Ethereum ETF has a fee of 0.2% (0% for the first $1.5 billion or first 12 months) and is ETHV;
The Invesco Galaxy Spot Ethereum ETF has a fee of 0.25% and the ticker is QETH;
The Franklin Spot Ethereum ETF has a fee of 0.19% (0% before January 31, 2025 or the first $10 billion), and the ticker is EZET;
Grayscale’s spot Ethereum ETF has a high fee of 2.5%, with the ticker ETHE;
The Grayscale Ethereum Mini Trust ETF has a fee of 0.15% and the ticker is ETH.
It is worth noting that, like Grayscale's GBTC, Grayscale is converting the existing Grayscale Ethereum Trust ETHE into an ETF, and it still continues the previous 2.5% fee rate! In October last year, Grayscale and NYSE Arca jointly applied to convert Grayscale's Ethereum Trust Fund into an Ethereum spot ETF.
According to data from Grayscale's official website, the ETHE Trust was established in December 2017, listed in June 2019, and listed as an ETF on July 23. At present, ETHE holds a total of 2.63 million ETH. Due to its early establishment, the average cost of Grayscale holding ETH is only a few hundred dollars. In addition, after ETHE was converted to an ETF, the fee rate remained at a high level of 2.5%. Some opinions pointed out that because ETHE was previously a trust, redemption was not allowed during the duration, and there was a 6-month lock-up period, coupled with the high fee rate that was 10 times higher than that of its competitors, this would inevitably lead to a large outflow!
Although Grayscale has introduced the Grayscale Mini Trust ETF (the fee has been significantly reduced from 0.25% to 0.15%, and the first 6 months are free, and it is currently the ETF with the lowest fee) in order to prevent capital outflow, it is still difficult to escape the selling pressure dilemma that may occur after GTBC went public!
Opinion: ETHE’s selling pressure will not be as great as GBTC
ETHE Trust was launched in 2019. Like GBTC, it is one of the earliest ETH-bound funds in the US market. Previously, as a closed-end fund, ETHE had a unique structure that caused the fund price to be sometimes premium and sometimes discount compared to the net asset value, thus providing certain arbitrage opportunities. However, due to a series of bankruptcies such as FTX and DCG, trusts such as GBTC were once severely criticized by the market as "the culprit of institutional bubbles and collapses."
Furthermore, compared with trust products, ETFs have higher transparency, stronger liquidity, lower thresholds, lower redemption risks, and are more easily accepted by mutual fund managers and pension funds, so they are naturally more popular in the market. For this reason, while other institutions have applied for crypto asset spot ETFs, Grayscale's GBTC and ETHE trust products have finally chosen to convert into ETF products in order to avoid being gradually marginalized.
It should be noted that after GBTC was successfully converted into a Bitcoin spot ETF, the selling pressure lasted for more than a month. Therefore, the market is also worried about the potential large-scale outflow after ETHE is listed.
According to Farside Investors data, as of July 22, GBTC has been in a state of capital outflow, with a cumulative net outflow of $18.49 billion. Although the 2.63 million ETH held by Grayscale (worth about $9.3 billion) is much smaller than the size of GBTC, it is conceivable that the high fee rate of ETHE will inevitably lead to a certain degree of capital outflow.
However, analyst Theclues firmly believes that there is a huge difference between ETHE and GBTC, and the selling pressure of ETHE after its listing will not be as turbulent as that of GBTC.
She said that before the BTC ETF was passed, there were no waves and expectations were stable, and in the three months before January 10, it soared nearly 100%.
However, the ETH ETF has experienced many ups and downs, especially the shocking reversal from "not passing in the short term" to "passed in July". The expected speculation restarted from 2800, and it has risen by 21% so far. The motivation for Sell news comes from the expected profit of speculation funds. In comparison, the motivation for ETH to be sold is simply incomparable to BTC.
In addition, although ETHE also has arbitrage profits (buying at a discount of 40%), ETHE is significantly different from GBTC. Before GBTC was converted to an ETF, the weekly trading volume was only more than 100 million US dollars, but now the weekly trading volume of ETHE exceeds 400 million US dollars, and has lasted for several weeks. In addition, ETHE's premium narrowed to less than 6% very early, while GBTC's premium only gradually returned two weeks before it was converted to an ETF. Therefore, ETHE arbitrage has ample space and market depth to sell ETHE shares. She believes that many predictions of market crashes are based on the view that the "subject to be predicted" is stationary, which is too subjective.
Moreover, even if ETHE encounters selling pressure and market crash in the short term, in the long run, it will be gradually absorbed by other Ethereum ETFs. We can clearly see from the inflow and outflow of Bitcoin spot ETFs that although GBTC outflows are huge, as of July 22, the net inflow of Bitcoin spot ETFs has exceeded US$17 billion. And from the perspective of price performance, the selling pressure has not had too much impact on the price of Bitcoin.
In addition, ETHE has another crucial move compared to GBTC, that is, Grayscale split the Mini Trust ETF from ETHE. According to its official website, as of July 18, 2024, 10% of the underlying ETH of the Grayscale Ethereum Trust (ETHE Trust) was split at the same time as the creation of the Grayscale Ethereum Mini Trust (ETH Trust). As a result, the net asset value of ETHE Trust shares will be 10% lower than the net asset value of the previous day on July 18, 2024 (without considering any potential rise or fall in the price of ETH), and ETHE Trust shareholders can obtain the proceeds of the split without any operation and are entitled to ETH Trust shares at a ratio of 1:1. Therefore, their overall exposure to ETH will remain constant.
In other words, Grayscale currently owns two ETFs, ETHE and ETH. ETHE holds 90% of the initial ETH and has a management fee of 2.5%, which is more suitable for institutions and professional investors. ETH holds 10% of the initial ETH and has a lower management fee, which is used to reduce user churn and reduce potential selling pressure.
Therefore, compared to GBTC, ETHE outflows will be more moderate as holders transition to the Mini Trust ETF.
Grayscale's Mini Trust ETF can also help long-term holders avoid taxes cleverly, which provides ETHE holders with an excellent balance between not reducing income and selling, especially those holders who are hit by potential capital gains taxes.
Estimated inflow size of ETH ETF
At present, many institutions have made estimates of the inflow scale of ETH ETF:
Grayscale's research team boldly predicts that the demand for US spot Ethereum ETFs is expected to reach 25%-30% of the demand for spot Bitcoin ETFs. It should be noted that a large part of Ethereum's supply (such as staked ETH) may not be available for ETFs.
ASXN Digital Asset Research claims that when the ETH ETF goes live, ETHE holders will have 2 months to exit at a range close to par. This is a key variable that plays an important role in preventing ETHE outflows, especially exit flows. ASXN internally estimates that there will be $800 million to $1.2 billion in inflows per month. This is calculated by taking the market-cap-weighted average of the monthly Bitcoin inflows and multiplying it by the market cap of ETH.
Bloomberg ETF analyst Eric Balchunas boldly predicted that the Ethereum spot ETF could capture 10% to 15% of the assets obtained by the Bitcoin spot ETF, which could amount to US$5 billion to US$8 billion.
Galaxy expects that the net inflow of ETH ETF will reach 20-50% of the net inflow of BTC ETF in the first five months, with a target of 30%, which means a net inflow of US$1 billion per month.
Shenyu predicts that in the initial listing period between June and December, the main inflow of funds is likely to come from retail investors, accounting for 80 to 90% of the total funds, and the participation of institutional users is relatively small. Considering that ETHE is similar to GBTC, the market may face some arbitrage and selling pressure, and whether it can withstand such selling pressure remains to be seen. After December, institutional investors may gradually enter the market.
However, the market generally believes that the inflows brought by the ETH ETF are relatively limited.
JPMorgan’s Nikolaos Panigirtzoglou predicted in late May that Ethereum ETF inflows could be just a fraction of Bitcoin’s.
Citigroup expects ETF inflows to account for 30%-35% of Bitcoin inflows, a figure that could reach $4.7 billion to $5.4 billion over the next six months, CoinDesk cited in the report.
Both banks agree that Bitcoin has a first-mover advantage and emphasize that the functions provided by Ethereum cannot be achieved through an ETF, which is why demand is limited.
How will ETH price be affected?
At present, the mainstream view in the market is that since the approval news of the Ethereum spot ETF appeared as early as May, and the market’s waiting time was extremely long between the SEC’s approval of the 19-b and S-1 application documents, the impact of the ETF on the market is likely to have been fully digested, so the ETH ETF is unlikely to bring huge fluctuations to the price of ETH.
There are also some rather optimistic views that Ethereum will outperform Bitcoin after the first ETFs are launched.
Research from analytics firm Kaiko suggests that the upcoming ETH ETF should strengthen ETH's performance relative to BTC. Kaiko noted that since regulators approved the ETF in May, the ETH to BTC ratio (a key metric used to compare the two major cryptocurrencies) has risen sharply, soaring from 0.045 to 0.05, and has remained high. In other words, more Bitcoin is needed to buy one ETH, and this trend will only be further exacerbated when the ETF is officially launched. Although ETH's price has been volatile since May, the ratio shows that ETH is ready to rise.
Rachel Lin, CEO of SynFutures, claimed in May that in addition to demand factors, supply changes will also open up upside, which will lead to a tightening of the price ratio of BTC to ETH. She feels that the current market attitude towards Ethereum is "not optimistic enough" and all indicators suggest that ETH will usher in a massive bull market in the coming months.
Well, that’s all for this issue for now. See you next time! If you like it, please follow us so you don’t get lost!
