The Ethereum market has been lackluster, but there have been plenty of positive news surrounding Ethereum spot ETFs. First, ConsenSys announced that the SEC has halted its investigation into Ethereum securities. Then, there were market rumors that the Ethereum spot ETF is expected to be approved and launched on July 2nd. Standard Chartered Bank also joined in the excitement, with reports that it is planning to build a trading platform for Bitcoin and Ethereum.
Despite the abundance of news, the market has not shown any significant improvement. With Bitcoin dropping below $60,000 and Ethereum falling back below $3,400, the market remains sluggish. However, when compared to Ethereum’s drop to $2,900 in May due to a lack of narrative, and the recent decline in other major cryptocurrencies, it is evident that the expectation of a spot ETF has provided strong price support for ETH.
With the imminent launch of the highly anticipated Ethereum spot ETF, its performance after listing has become a hot topic of discussion in the industry. There are different views on whether it will quickly decline or rally under institutional capital.
The Ethereum market has been characterized by ups and downs, with the Cancun upgrade and the hype surrounding the spot ETF being the main narratives. On March 13th, after the Cancun upgrade was completed, ETH reached a high of $3,981. Since then, its price has fluctuated with the news surrounding the ETF, dropping significantly when the ETF approval seemed unlikely, and then experiencing a sharp rebound to $3,600 before continuing to fluctuate at high levels.
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. Under the recent concerns about ETF fund outflows and selling pressure, major value coins have continued to decline. However, compared to Bitcoin’s 7.72% decline in a week from $65,000, Ethereum has shown stronger resilience with a decline of only 3.18%, demonstrating relatively strong support. Furthermore, there have been several positive fundamentals surrounding Ethereum in recent days.
Firstly, the clarification of its non-security status is significant. ConsenSys announced on social media last week that the U.S. Securities and Exchange Commission (SEC) has decided to end its 14-month investigation into Ethereum. Although the litigation between the two parties is ongoing, this is undoubtedly a milestone in cryptocurrency regulation.
The abandonment of the Ethereum investigation means that the SEC will not charge ETH sales as securities transactions. This is in line with the potential implications of the approval of the Ethereum ETF under 19b-4, which eliminates Ethereum’s security status. However, prior to this news, there were still rumors that the SEC would take action against Ethereum due to its avoidance of discussing Ethereum’s attributes, even after the approval of the ETF.
Secondly, the ETF approval is approaching. Although the SEC mentioned in an interview that it would announce the approval of the Ethereum spot ETF this summer, the lack of a specific timeline has caused market anxiety. Recently, an estimated timeline has finally emerged. On June 21st, Bloomberg ETF analyst Eric Balchunas announced on social media that the issuers of the Ethereum spot ETF are expected to submit revised S-1 forms later in the afternoon. Subsequently, the SEC will notify the issuers of the final modifications and effectiveness, and the spot ETF is expected to be launched on July 2nd. Considering Balchunas’ accurate prediction of the launch of the Bitcoin ETF and the reversal of the Ethereum ETF, this timeline is considered credible.
In addition, Standard Chartered Bank has announced that it is building a trading platform for Bitcoin and Ethereum. If this news is true, it will further expand the trading channels and reduce the barriers for investors. However, traditional institutions face significant challenges in engaging in cryptocurrency trading due to regulatory feasibility and infrastructure considerations.
Despite the positive news, the actual price performance has been less than satisfactory. Market opinions on the upcoming ETF are divided. When it comes to market size, Bitcoin ETFs have set an excellent example. According to Farside Investors, since their launch in January, net flows into BTC-related products have reached $14 billion, with assets under management (AUM) exceeding $50 billion. However, concerns arise regarding the size of the Ethereum ETF.
The majority of analysts believe that Ethereum can only account for 15-20% of Bitcoin’s market share. Morgan Stanley analysts predict that by the second half of 2024, the Ethereum ETF will only attract net inflows of $1 billion to $3 billion. Andrew Kang, co-founder of Mechanism Capital, holds a similar view and has written a detailed article analyzing the impact of the Ethereum spot ETF on the market.
According to Kang’s analysis, excluding arbitrage trading and spot rotation, the true net inflows of the Bitcoin ETF amount to $5 billion. Based on Eric Balchunas’ estimate, the flow of ETH may be 10% of BTC, which means that the true net purchase flow in the first six months after the ETF approval may be around $500 million, with an optimistic estimate of around $1.5 billion.
He emphasizes that Ethereum is not popular among traditional institutions such as pension funds, endowments, and sovereign wealth funds. Firstly, Ethereum’s institutional market position is smaller than Bitcoin’s. Before the ETF approval, Ethereum positions in the CME accounted for only 0.3% of the supply, while Bitcoin accounted for 0.6%. However, before the ETF launch, ETH had already increased fourfold from its low point, while BTC had only increased 2.75 times, indicating limited upside potential for ETH. Secondly, from a quantitative perspective, Ethereum’s performance has been poor, with a 30-day annualized revenue of $1.5 billion and a price-to-earnings ratio of 300, which becomes negative when inflation is taken into account.
A more realistic reason is that due to the sudden approval, issuers have not spent much time persuading holders to convert their ETH into ETFs, and choosing ETFs also comes with the opportunity cost of ETH staking rewards. Kang expects ETH’s trading price to be between $3,000 and $3,800 before the ETF is launched, and between $2,400 and $3,000 after its launch. If BTC rises to $100,000 in the fourth quarter/first quarter of 2025, it may drag down the rise of Ethereum and altcoins, resulting in a lower ETH/BTC ratio between 0.035 and 0.06 in the next year.
While there are bearish views, there are also bullish arguments. In response to Andrew Kang’s analysis, Degentrading countered that Ethereum could reach $6,000 by September. They emphasized that in discussions with traditional financial professionals, the market’s enthusiasm for ETH and even SOL is higher than for BTC. Additionally, although Ethereum’s market size is about one-third of Bitcoin’s, its liquidity is only about 10% of BTC’s, which means that inflows of $3-4 billion will have a substantial impact on ETH. Furthermore, the stock of ETH in Grayscale’s trust puts less selling pressure on Ethereum compared to Bitcoin. A recent report by Deribit Insights also gives a bullish signal, as the premium for buying options for September $4,000 ETH has exceeded $12 million, indicating an increase in medium-term market optimism.
Regardless of the controversies, ETF issuers have already initiated a fee war. Last week, several issuers of Ethereum spot ETFs submitted revised S-1 forms, and in terms of fees, Ethereum’s fees are generally lower than Bitcoin’s, with VanEck disclosing fees 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 fees below 30 basis points.
Prior to this, Cathie Wood’s Ark Investment Management withdrew from the Ethereum spot ETF race due to its lack of profitability. She mentioned that the Bitcoin spot ETF did not generate any revenue for the company because the fees charged to investors were too low, at only 0.21%. Although this is similar to the fees charged by other Bitcoin ETF issuers, it is still significantly lower than the fees charged by other non-cryptocurrency ETFs.
In this context, allowing staking may potentially increase the competitiveness of the Ethereum spot ETF. Although no ETF issuer has made any amendments to support staking, it is likely that issuers will make modifications in the future to cope with the pressure to generate profits. However, it is worth noting that if staking is allowed, issuers may choose to build their own nodes as validators for security and efficiency reasons, which would dilute the market share of other Ethereum ecosystem projects.
Returning to Ethereum itself, as the largest application platform in the cryptocurrency field, the price of ETH represents the development of the entire crypto ecosystem. However, in recent years, as applications and ecosystem development have reached a bottleneck, the narrative around Ethereum has shifted to upgrades. Apart from the vitality brought by staking, Ethereum also serves as a symbol of mainstream coins. Compared to Bitcoin’s value consensus, Ethereum’s positioning in the eyes of institutions is 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 replaceable investment product with less resilience in value compared to Bitcoin, sometimes even failing to rise with the market or experiencing lower gains than some US stocks. Especially in the current context of limited application innovation, the growth of Ethereum’s ecosystem has slowed down, and MEME cycles have been rotating, occasionally leading to discussions about Solana surpassing Ethereum.
Although there is much debate about whether Ethereum is a better investment commodity than Bitcoin from an investment value perspective, 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 may flow into the altcoin market, but the funds invested in Bitcoin will not.
Considering various price perspectives, it is highly probable that Ethereum will experience high volatility after the ETF is launched. Paying attention to selling the news, short-term bearishness and long-term bullishness align with market price expectations. Meanwhile, various altcoin speculations have already begun in anticipation of the ETF, which may offer alternative ways to profit.
