With the possibility of U.S. spot Ethereum (ETH) ETFs becoming a reality, experts are questioning the extent to which their approval will influence the market compared to Bitcoin (BTC) equivalents. Bitwise, the world’s largest crypto index fund manager, believes that the impact will be less significant. In an interview with CryptoPotato, Juan Leon, an analyst at Bitwise, shared his insights on why this might be the case.
According to Leon, while institutional investors have become more knowledgeable about BTC as an investment asset, many still struggle to grasp the unique qualities of its younger counterpart. Even those who can differentiate between the two cryptocurrencies find it challenging to determine their respective places in a portfolio. To assist advisors in explaining this, Bitwise suggests comparing BTC to gold and ETH to a high-growth tech stock.
Bitwise’s Chief Investment Officer, Matt Hougan, identifies two reasons why ETFs are expected to have a greater influence on Bitcoin rather than Ethereum. Firstly, BTC is likely to be the first cryptocurrency to secure an ETF and attract significant attention. This initial focus is likely to overshadow the potential impact of Ethereum ETFs. Secondly, Bitcoin’s utility aligns more closely with what an ETF offers, as it provides a means to store wealth outside of traditional fiat systems.
While Bitcoin is often seen as a store of value, Ethereum is recognized for its programmability and ability to host complex applications. The network’s capacity to facilitate decentralized exchanges and lending services has earned it the reputation of being the “digital oil” powering the ecosystem. Financial advisors who understand Ethereum appreciate its functionality and recognize its potential, especially in the context of staking, which generates “dividend-like” cash flows that are absent in Bitcoin.
Acknowledging the lackluster inflows to Ethereum-based funds this year, Leon remains optimistic about the long-term institutional interest in ETH. The subdued market activity surrounding Ethereum ETFs’ launch was primarily due to exceptionally low crypto volumes and media distractions. As more investors become aware of the crypto market’s resurgence and recognize BTC as the best-performing asset globally year-to-date, there will likely be increased attention on Ethereum and its unique value proposition.
Despite the current quietness around Ethereum, Leon believes that it is only temporary. As institutional investors continue to familiarize themselves with the benefits of ETH and its role as the foundation for a decentralized app store, the interest in Ethereum is expected to rise. The gradual understanding and recognition of its potential by financial advisors will likely lead to increased investment inflows over time.
While the approval of Ethereum ETFs may not initially create as strong of an impact as their Bitcoin counterparts, there is a growing recognition of Ethereum’s unique qualities and potential among institutional investors. As the market evolves and ETH gains more traction, its value as a smart-contract platform and its various use cases, including staking for dividend-like cash flows, are becoming better understood. With this understanding, it is plausible that Ethereum ETFs will eventually have a notable influence on the market and attract substantial investment interest.