Experts: Ethereum ETFs Launch Won’t Rival Bitcoin ETFs

The U.S. Securities and Exchange Commission (SEC) approved the listing of eight Ethereum-based exchange-traded funds (ETFs) on May 23. The ETFs are expected to start trading in July. After the launch, investors will gain exposure to Ethereum without having to hold the cryptocurrency directly.

Bitcoin ETFs, which were greenlighted by the SEC in January, have accumulated $54 billion in assets under management as of July 2. Ethereum ETFs are expected to underperform compared to Bitcoin ETFs, but the two offer essentially different value propositions to investors.

When Will Ethereum ETFs Start Trading?

The SEC has approved eight companies to launch Ethereum ETFs. These include Grayscale Ethereum Trust and Bitwise Ethereum ETF, which will be listed on the New York Stock Exchange. BlackRock’s iShares Ethereum Trust will be listed on Nasdaq, while the Chicago Board Options Exchange (CBOE) will list VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund, and Franklin Templeton’s Franklin Ethereum ETF.

As required by the SEC, the funds have started to file their S-1 forms, another layer of the approval process where the regulator examines the specific details of each ETF. The process can take several weeks, but a recent Bloomberg report suggests that it could be expedited so that the ETFs start trading by mid-July.

Bitwise just filed amended S-1 for spot Eth.. which wasn’t ‘due’ until July 8th. Prob just wanted to get it off their plate and from what I hear the last round of comments were ‘literally nothing’ = took zero time to update. Also, no fee yet. Prob get those next week-ish. pic.twitter.com/1r8xgKcdyC

— Eric Balchunas (@EricBalchunas) July 3, 2024

“Ethereum Price Could Rise by 22%”

More people are expected to buy and sell Ethereum as a result of the approval, which will likely push up the market price of the cryptocurrency.

Chief analyst at Bitget Research, Ryan Lee, told Cryptonews that the intensity of capital injection into Ethereum ETFs, relative to circulating supply, will determine how the Ether price, currently at about $3,000 , will respond.

“If the existing exchanges release their purchasing power and the current purchasing power in the market does not shift towards ETH, the price could rise by 22.69% or push toward $4,724,” Lee projected.

“If this happens, ETH price may essentially return to the previous high. This calculation is based on the number of 13.4 million ETH held by exchanges,” he added.

‘Less Impressive’ Compared to Bitcoin’s Influence

Whereas Bitcoin is widely recognized as a store of value, often referred to as digital gold, Ethereum positions itself as a socially innovative community. Beyond facilitating transactions without a centralized authority, such as a bank, Ethereum offers technologies that use the blockchain to address social problems.

The Ethereum blockchain is home to thousands of games, applications, and social use cases. Ethereum also underpins non-fungible tokens (NFTs), which are used to manage, share, or transfer copyrights on the network. NFTs have led to greater publicity and adoption of crypto as they attract mainstream entertainment and other cultural creators.

BasedVC head of investments Musthafa Ahmed predicts that Ethereum ETFs will take a back seat to Bitcoin’s historic ETFs run, which now have $54 billion in assets under management.

“We believe that the Ethereum ETF may be less impressive as the market cap or volumes of the Ethereum may mean more muted inflows when the exchange-traded funds are launched,” he told Cryptonews.

Lee, the Bitget analyst, believes Ethereum ETFs could trigger “a major market rally” that will, nevertheless, be outlived by BTC ETFs’ impact on the cryptocurrency markets.

“The ETH ETF may not sustain the market for long, since Bitcoin still dominates the industry,” Lee said. “In any case, Ethereum will be competing with Bitcoin, which is another major hurdle that might make the market less potent.”

What Are the Risks of Investing in ETH ETFs?

Investors buying into Ethereum ETFs should expect a lot of volatility because Ether is prone to price swings, analysts say. Bitget’s Lee notes that the Ethereum exchange-traded funds will be as volatile as the assets they track.

“Investors should keep in their minds that the fundamentals backing Ethereum today may change in the coming years,” he explained. “This is a major threat, as Ethereum adoption and dominance in DeFi may slow down if users prefer competitive networks. If this happens, Ethereum ETFs performance may follow suit.”

Ahmed, the head of investments at BasedVC, noted the SEC chair’s restraint in approving the Ethereum ETFs. Remarkably, ETH funds pressured the securities regulator into approval through a series of lawsuits. According to analysts, Ethereum ETFs may slow down if the regulator refuses to greenlight future innovations meant to drive their growth. A case in point is the SEC’s refusal to approve staking.

“Focus should also be on whether the tax implications on capital gains would apply to the ETFs that get approved,” Ahmed added.

Regulation Halts Staking, Dealing a Blow to ETH 2.0

Over the past two years, Ethereum has moved from proof-of-work to proof-of-stake as a means of verifying transactions on the blockchain. The transition has been viewed as a significant victory for the environment, as proof-of-work required mining that consumed high amounts of electricity.

In contrast, proof-of-stake requires locking away a certain amount of Ether to verify transactions on the network. Popularly referred to as ETH 2.0, this transition has arguably reduced carbon emissions from Ethereum mining equipment by nearly 100%.

Gary Gensler, chair of the US Securities and Exchange Commission, says “there’s nothing inconsistent about crypto securities and the securities laws,” but he does say they are still being broken https://t.co/518XPTe1fq pic.twitter.com/CtvqUOpSfR

— Bloomberg TV (@BloombergTV) June 25, 2024

However, in a setback for ETH 2.0 enthusiasts, the SEC has not approved staking, questioning its structure as a security. A court victory by Grayscale initially pressured the SEC to approve Ethereum ETFs. Despite this, the regulatory agency doubled down on its resistance to staking, forcing Grayscale and two other applicants to remove staking from their proposals.

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