The cryptocurrency market is abuzz with anticipation as asset managers gear up for the launch of new spot Ethereum ETFs, awaiting approval from the US Securities and Exchange Commission (SEC). This development has sparked interest and speculation among investors and analysts alike, with many industry experts weighing in on the potential implications of these ETFs on the market dynamics.
According to Bitwise Chief Investment Officer (CIO) Matt Hougan, the introduction of spot Ethereum ETFs is expected to bring about significant inflows into the regulated market within the first few months of trading. Hougan’s projections are grounded in a comprehensive analysis of market data, with a particular focus on the relative market capitalizations of Bitcoin (BTC) and Ethereum (ETH). By comparing the market caps of the two leading cryptocurrencies, Hougan estimates that spot Ethereum ETFs could attract approximately $15 billion in net inflows during the initial 18-month period.
Hougan draws parallels between the US market and international ETF markets in Europe and Canada, where Bitcoin and Ethereum ETFs are already being offered. He notes a similar asset split between the two cryptocurrencies in these markets, with Bitcoin ETPs representing around 78% and Ethereum ETPs making up approximately 22% of the total Assets Under Management (AUM). This alignment with market cap breakdowns further strengthens his forecast of substantial inflows into spot Ethereum ETFs.
While Hougan’s estimates paint a promising picture for spot Ethereum ETFs, he acknowledges that actual inflows may vary due to external factors. For instance, the conversion of the Grayscale Ethereum Trust (ETHE) to an ETP on the launch day is expected to bring along $10 billion in assets, impacting the overall net inflows to spot Ethereum ETFs. Taking this into account, the estimated net inflows required to reach parity with Bitcoin ETPs would be around $25 billion, rather than the initial estimate of $35 billion.
Hougan also delves into the influence of the “carry trade” strategy on Bitcoin and Ethereum ETP markets. While a significant portion of US Bitcoin ETP flows are attributed to the carry trade strategy, he highlights that the Ethereum ETP carry trade is not as lucrative for institutions. In order to provide a more conservative estimate, Hougan adjusts the sizing of the Bitcoin market by removing the $10 billion carry-trade-related AUM, leading to a revised forecast of $15 billion in net inflows for Ethereum ETPs.
The impending launch of spot Ethereum ETFs has the potential to reshape the cryptocurrency market landscape and attract substantial inflows from investors. Hougan’s meticulous analysis and comparative study of market data offer valuable insights into the expected impact of these ETFs on the regulated market, providing a framework for understanding the changing dynamics of the cryptocurrency investment space. As the SEC deliberates on the approval of spot Ethereum ETFs, industry stakeholders are closely monitoring the developments, eager to capitalize on the new opportunities that these ETFs may present.