Ethereum, the second-largest cryptocurrency by market capitalization, has been on a tear lately, breaking above the key resistance level of $2,400 and reaching its highest price since mid-2022. The rally has been fueled by a combination of factors, including the anticipation of the Ethereum 2.0 upgrade, the growing popularity of decentralized finance (DeFi) and non-fungible tokens (NFTs), and the increasing institutional adoption of the digital asset.
But the most exciting catalyst for Ethereum’s price growth may be yet to come: the approval of the first spot Ethereum exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC). If history is any guide, the introduction of spot Ethereum ETFs could unleash a wave of new demand and liquidity for the cryptocurrency, potentially pushing its price to new highs.
What are spot Ethereum ETFs and why do they matter?
A spot Ethereum ETF is an investment vehicle that tracks the price of Ethereum by holding the cryptocurrency itself, rather than futures contracts or other derivatives. This means that investors can gain exposure to Ethereum without having to buy or store the cryptocurrency directly, which can be costly, complicated, and risky.
Spot Ethereum ETFs are expected to offer several advantages over existing crypto-related products, such as:
- Lower fees: They are likely to charge much lower fees than other crypto funds, such as the Grayscale Ethereum Trust, which charges a 2.5% annual fee, or the ProShares Ethereum Strategy ETF, which charges a 0.95% annual fee and invests in Ethereum futures contracts, which incur additional costs and risks.
- Higher liquidity: They are expected to trade on major stock exchanges, such as the NYSE or Nasdaq, which have much higher trading volumes and liquidity than the over-the-counter (OTC) markets, where most crypto funds are currently listed. This means that investors can buy and sell more easily and at better prices, without affecting the underlying market.
- Better tracking: They are designed to track the price of Ethereum as closely as possible, by creating and redeeming shares in response to market demand. This reduces the possibility of the ETF trading at a significant premium or discount to its net asset value (NAV), which is the case for many crypto funds.
- Wider access: They are expected to attract more investors, especially institutional and retail investors, who may not have access to or interest in buying and holding cryptocurrencies directly. Spot Ethereum ETFs can also be included in various portfolios, such as retirement accounts, mutual funds, or exchange-traded funds, which can increase the diversification and exposure of crypto assets.
When will spot Ethereum ETFs be approved and what will be the impact?
The SEC has been notoriously slow and cautious in approving crypto-related products, especially spot ETFs, which have been repeatedly rejected or delayed by the regulator over the past decade. However, the tide seems to be turning, as the SEC recently approved the first spot Bitcoin ETFs, which began trading on Jan. 11, 2024. For this context, more than $1 billion in trading volume in the first minutes and $4.6 billion total in the first day.
The approval of spot Bitcoin ETFs has set a precedent and a roadmap for spot Ethereum ETFs, which are expected to follow suit in the near future. Several major asset managers, such as BlackRock, VanEck, ARK Invest & 21Shares, Fidelity, and Invesco Galaxy, have filed applications, which are pending review by the SEC. The earliest deadline for a decision is May 23, 2024, for VanEck’s Ethereum ETF, followed by other applicants in the subsequent weeks.
The approval of spot Ethereum ETFs could have a significant impact on the price and adoption of the cryptocurrency, as seen in the case of spot Bitcoin ETFs, which boosted the price and trading volume of Bitcoin to new highs. Senior ETF analyst Eric Balchunas said that there is a 70% chance that spot Ethereum ETFs will be approved by May, and he expects them to attract more assets than spot Bitcoin ETFs, given Ethereum’s higher growth potential and broader use cases.
Some experts have even predicted that Ethereum could outperform Bitcoin in 2024, and reach a valuation of $10,000 or more, based on factors such as the Ethereum 2.0 upgrade, which will improve the scalability, security, and efficiency of the network, the increasing demand for DeFi and NFTs, which are mostly built on Ethereum, and the growing institutional adoption of the cryptocurrency, which could increase its legitimacy and credibility.
What are the risks and challenges for spot Ethereum ETFs?
While spot Ethereum ETFs offer many benefits and opportunities for investors, they also come with some risks and challenges, such as:
- Regulatory uncertainty: The SEC’s approval of spot Bitcoin ETFs does not guarantee the approval of spot Ethereum ETFs, as the regulator may have different concerns or standards for different cryptocurrencies. The SEC may also impose additional requirements or restrictions on spot Ethereum ETFs, such as higher capital or liquidity standards, or stricter reporting or auditing rules, which could affect their performance or attractiveness.
- Market volatility: Spot Ethereum ETFs are subject to the same market volatility and risks as the underlying cryptocurrency, which can be influenced by various factors, such as technical issues, security breaches, hacking attacks, regulatory actions, or market sentiment. It may also experience higher volatility than other crypto funds, due to their higher liquidity and sensitivity to market demand.
- Competition and innovation: Spot Ethereum ETFs may face competition from other crypto-related products, such as futures-based ETFs, trusts, or funds, which may offer different features or advantages, such as lower fees, higher returns, or more flexibility. It may also become obsolete or less relevant, as the crypto industry evolves and innovates, creating new products or platforms that may offer better solutions or alternatives for investors.
Spot Ethereum ETFs are one of the most anticipated and exciting developments in the crypto space, as they could provide a convenient, efficient, and accessible way for investors to gain exposure to the second-largest cryptocurrency. It could also boost the price and adoption of Ethereum, as they could attract more capital and liquidity to the market, and increase the awareness and recognition of the cryptocurrency.
However, they are not without risks and challenges, as they depend on the SEC’s approval and regulation, and are subject to the same market volatility and risks as the underlying cryptocurrency. It may also face competition or obsolescence from other crypto-related products or innovations, which may offer different or better options for investors.
At the time of writing this article, Ethereum trades above $2,500, with a market cap of $302 billion. This is how bullish the market is based on the anticipated Ethereum ETF news. Again, investors should do their own research and due diligence before investing in them, and be prepared for the potential rewards and risks that come with them. They are not for the faint-hearted, but for those who believe in the long-term potential and value of Ethereum, they could be a game-changer.
What is the significance of spot Ethereum ETFs, and how do they differ from other crypto-related investment products?
According to Anndy Lian, spot Ethereum ETFs are investment vehicles that track the price of Ethereum by holding the cryptocurrency itself, providing advantages like lower fees, higher liquidity, better tracking, and wider access compared to existing crypto funds.
What advantages do spot Ethereum ETFs offer over traditional crypto investment options, and how might these benefits impact investor behavior?
Spot Ethereum ETFs are expected to have lower fees, higher liquidity, better tracking, and wider access, making them more attractive to both institutional and retail investors. These advantages could potentially drive increased demand and liquidity for Ethereum, influencing its price.
When is the expected timeline for the approval of spot Ethereum ETFs, and what factors might influence the SEC's decision?
The SEC has recently approved spot Bitcoin ETFs, setting a precedent for Ethereum. Several major asset managers have filed applications for spot Ethereum ETFs, with the earliest decision deadline being May 23, 2024. The approval process depends on the SEC's evaluation of factors like regulatory concerns, standards, and potential additional requirements.
How might the approval of spot Ethereum ETFs impact the price and adoption of Ethereum, based on the historical example of spot Bitcoin ETFs?
Anndy Lian said that the approval of spot Bitcoin ETFs led to a surge in trading volume and price for Bitcoin. Analysts predict a similar impact on Ethereum, with a senior ETF analyst stating a 70% chance of approval by May. The anticipated effects include increased assets, price growth, and heightened legitimacy for Ethereum.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.