Ethereum ETFs Launch: Investors Show Low Expectations

The U.S. Securities and Exchange Commission (SEC) has officially approved the launch of several Ethereum ETFs, making these funds a new investment vehicle for the second-largest cryptocurrency by market capitalization. These ETFs are set to track the price of Ethereum’s native token, ETH, which currently has a market cap of approximately $418 billion.

As of this Tuesday, ETFs from 21Shares, Bitwise, Fidelity, Franklin Templeton, Invesco, iShares, and Grayscale have been given the green light from the SEC. 

Despite the approval, market analysts have mixed expectations regarding the potential popularity of Ethereum ETFs when compared to their Bitcoin counterparts. For instance, James Seyffart, an analyst at Bloomberg Intelligence, predicts that Ethereum ETFs might attract only about 20% to 25% of the investment flows that Bitcoin ETFs garnered in their initial months.

Wintermute, a prominent market maker, estimates that Ethereum ETFs could see inflows ranging from $3.2 billion to $4 billion in their first year, substantially lower than the nearly $60 billion currently held in Bitcoin ETFs. 

More optimistically, crypto asset firm ASXN expects monthly inflows into Ethereum ETFs to be between $800 million and $1.2 billion.

As seen with Bitcoin, many predict that the Grayscale Ethereum Trust (ETHE) will be a major factor influencing the inflows and outflows of an Ethereum ETF. Grayscale will convert its ETHE Trust into a spot ETF and will also launch a mini trust, which will be seeded with $1 billion from the original fund. Just like with its BTC ETF, Grayscale has set the ETHE’s fee at 2.5%, which is significantly higher than its competitors.

These high fees will lead to significant outflows from the Grayscale Trust, though it remains to be seen whether investors will withdraw their money entirely or reinvest in other funds.

Furthermore, the initial versions of Ethereum ETFs included staking components, which were later removed. If firms decide to reintroduce staking or offer options within their spot Ethereum ETFs, they would need further approval from the SEC. Still, analysts believe that staking is likely a matter of when, not if. 

The absence of a staking option is not expected to drastically impact demand for these ETF products since institutional investors seeking exposure to Ethereum have limited regulatory-safe alternatives besides ETFs.

Currently, Ethereum’s price is hovering around $3,500, with no immediate influx of buying activity following the ETF approvals. This suggests that the market is waiting to see how much institutional interest there is in these new ETFs.

Moving forward, the focus will shift to monitoring the inflows and outflows of these funds to better understand their impact on Ethereum’s market behavior and price dynamics.