The market may be bleak, but there is no shortage of news surrounding Ethereum. There have been several positive developments regarding the Ethereum spot ETF. First, ConsenSys announced that the SEC has ended its investigation into Ethereum securities. Then, there were reports that the Ethereum spot ETF is expected to be approved and launched on July 2nd. In addition, Standard Chartered Bank is rumored to be building a trading platform for Bitcoin and Ethereum.
Despite the abundance of news, the market has not shown much improvement. Both Bitcoin and Ethereum have experienced a decline, with Bitcoin briefly falling below $60,000 and Ethereum dropping below $3,400. However, compared to Ethereum’s low point of $2,900 in May and the recent decline of other mainstream coins, it is evident that the expectation of the spot ETF has provided strong price support for Ethereum.
With the imminent launch of the highly anticipated Ethereum spot ETF, its performance after listing has become a topic of discussion in the industry. There are different opinions on whether it will quickly decline or rally under institutional capital.
The Ethereum market has been characterized by ups and downs this year, mainly revolving around the London upgrade and the speculation surrounding the spot ETF. After the London upgrade on March 13th, Ethereum reached a high of $3,981. However, the price has fluctuated due to news about the ETF, declining when the ETF was deemed unlikely to be approved and then experiencing a significant rally before settling into a high volatility pattern.
After the “618” sales promotion, the cryptocurrency market entered a period of calm. Due to a lack of liquidity, prices are easily influenced by emotions. Despite the outflow of funds from the ETF and concerns about selling pressure, Ethereum has shown stronger resilience compared to Bitcoin, with a decline of only 3.18% compared to Bitcoin’s 7.72% decline in the past week.
Furthermore, there have been several positive fundamental developments for Ethereum recently. First, ConsenSys announced on social media last week that the US Securities and Exchange Commission (SEC) has decided to end its 14-month investigation into Ethereum. Although there are still ongoing lawsuits related to Ethereum, this is undoubtedly a milestone in cryptocurrency regulation.
The SEC’s decision to end the investigation means that they will not charge Ethereum with securities violations, which aligns with the potential implications of the Ethereum ETF 19b-4 filing. This filing suggests that Ethereum’s security classification has been removed. However, prior to this announcement, there were still rumors that the SEC might take action against Ethereum due to their avoidance of addressing its securities classification, even after the ETF approval.
Secondly, the ETF approval is approaching. Although the SEC stated in interviews that they would announce the approval of the Ethereum spot ETF this summer, the lack of a specific timeline has created market anxiety. However, a recent estimate provides some clarity. On June 21st, Bloomberg ETF analyst Eric Balchunas announced on social media that the issuer of the Ethereum spot ETF is expected to submit a revised S-1 filing later in the afternoon. The SEC will then notify the issuer of the final modifications and effectiveness, and the spot ETF is expected to launch on July 2nd. Considering Balchunas’ accurate predictions regarding the Bitcoin ETF and the reversal of the Ethereum ETF, this timeline is credible.
In addition, Standard Chartered Bank has announced that it is building a trading platform for Bitcoin and Ethereum. If true, this will further expand the trading channels and reduce the barriers to entry for investors. However, traditional institutions face significant challenges in engaging in cryptocurrency trading, such as regulatory feasibility and infrastructure.
Despite the frequent positive news, the actual price performance has been underwhelming. Regarding the upcoming ETF, there are various opinions in the market. Bitcoin ETFs have provided excellent examples in terms of market size. According to Farside Investors’ data, since its launch in January, Bitcoin-related products have seen a net inflow of $14 billion and have managed assets (AUM) exceeding $50 billion. However, concerns have been raised about the scale of the Ethereum ETF.
The majority of analysts believe that Ethereum can only capture 15-20% of Bitcoin’s market share. Analysts at JPMorgan predict that by the second half of 2024, an Ethereum ETF will attract net inflows of only $1 billion to $3 billion. Andrew Kang, co-founder of Mechanism Capital, shares a similar view and has written a detailed article analyzing the impact of the Ethereum spot ETF on the market.
In his analysis, he excludes hedging trades and spot rotation and estimates that the true net inflow to Bitcoin ETFs is $5 billion. According to Eric Balchunas’ estimation, the flow into Ethereum may be 10% of that of Bitcoin, indicating a potential net purchase flow of $500 million within the first six months after the ETF is approved, with an optimistic estimate of around $1.5 billion.
He emphasizes that Ethereum is not attractive to traditional institutions that target retirement funds, donation funds, and sovereign wealth funds. Firstly, Ethereum’s market position among institutional investors is smaller compared to Bitcoin. Before the ETF approval, Ethereum accounted for only 0.3% of the supply on the Chicago Mercantile Exchange (CME), while Bitcoin accounted for 0.6%. Secondly, Ethereum’s quantitative data is not impressive, with a 30-day annualized revenue of $1.5 billion and a price-to-earnings ratio of 300, which becomes negative when inflation factors are considered.
A more practical reason is that, due to the sudden approval, issuers have not had enough time to persuade holders to convert their Ethereum into ETF form, and choosing an ETF also entails the opportunity cost of potential staking rewards. Andrew predicts that before the ETF is launched, Ethereum’s trading price will range from $3,000 to $3,800. After the ETF is launched, it is expected to be between $2,400 and $3,000. If Bitcoin reaches $100,000 by the end of 2025, it may weigh down the rise of Ethereum and altcoins, resulting in a lower ETH/BTC ratio ranging from 0.035 to 0.06 over the next year.
While there are bearish views, there are also bullish arguments. In response to Andrew Kang’s analysis, Degentrading argues that Ethereum could reach $6,000 by September. They emphasize that in discussions with traditional finance professionals, there is greater enthusiasm for ETH and even SOL than BTC. Additionally, although Ethereum’s market cap is only about one-third of Bitcoin’s, its liquidity is only about 10% of Bitcoin’s, meaning that a $3-4 billion inflow will have a substantial impact on Ethereum. The existence of the Ethereum trust from Grayscale also alleviates selling pressure compared to Bitcoin. A recent report from Deribit Insights also provides a bullish signal, as the premium on call options for ETH at $4,000 in September has exceeded $12 million, indicating an increase in medium-term market optimism.
Regardless of the controversy, ETF issuers have signaled the beginning of a fee war. Last week, several Ethereum spot ETF issuers submitted revised S-1 filings, and in terms of fees, Ethereum ETFs generally have lower fees compared to Bitcoin. VanEck disclosed a fee as low as 0.20%, which is very close to Franklin’s 0.19%. In this context, other institutions such as BlackRock will be forced to keep their fees below 30 basis points.
Previously, Cathie Wood’s Ark Investment Management withdrew from the Ethereum spot ETF race due to the lack of profitability. She mentioned that the Bitcoin spot ETF did not generate any income for the company because the fees charged to investors were too low, at only 0.21%. Although this fee is similar to what other Bitcoin ETF issuers charge, it is still significantly lower than the fees charged by non-cryptocurrency ETFs.
In this context, allowing staking may increase the competitiveness of the Ethereum spot ETF. Although no ETF issuer has yet modified their approach to support staking, it is highly likely that issuers will make changes in response to the pressure to generate profits. However, it is worth noting that if staking is allowed, issuers may build their own nodes as validators for security and efficiency reasons, which could dilute the market share of other Ethereum ecosystem projects.
Looking at Ethereum itself, as the largest application platform in the cryptocurrency field, the price of ETH represents the overall development of the crypto ecosystem. However, in recent years, as applications and ecosystem development have reached a bottleneck, the focus on Ethereum has shifted towards upgrades and speculation. Apart from the vitality brought by staking, Ethereum has become a symbol of mainstream coins.
Compared to Bitcoin’s value consensus, Ethereum’s positioning in the eyes of institutions is rather ambiguous. On one hand, it is considered a blue-chip stock in the technology sector and an absolute leader in the blockchain world. On the other hand, it is seen as a more easily replaceable investment product and lacks the same level of price stability as Bitcoin. Sometimes, it does not rise with the market and its price increase is not as significant as some US stocks. Especially in the current context of limited application innovation, Ethereum’s ecosystem growth has slowed down, and the MEME cycle has started to rotate, occasionally leading to discussions about Solana surpassing Ethereum.
Although there is much debate about whether Ethereum is a better investment commodity than Bitcoin, no one can deny Ethereum’s position and network effects. This is why the market is highly focused on the Ethereum spot ETF. The funds invested in Ethereum through staking could flow into the altcoin market, but the same cannot be said for Bitcoin.
Considering various price perspectives, it is highly likely that Ethereum will experience high volatility after the ETF is approved. Short-term bearishness and long-term bullishness align with market price expectations. Meanwhile, various altcoin speculation has already begun before the ETF approval, providing an alternative way to profit.
