Investment manager VanEck filed form 8-A for its spot Ether (ETH) ETF with the SEC. This caused analysts like Eric Balchunas to speculate that spot ETH ETF trading could start as early as Jul. 2, 2024. However, SEC Chair Gary Gensler might have a more cautious timeline in mind that extends to September.
Meanwhile, Bitwise CIO Matt Hougan predicted that spot Ether ETFs could attract $15 billion in net inflows within 18 months, although demand is still expected to be lower compared to Bitcoin ETFs. Analysts at Bernstein agree with this, and foresee healthy liquidity but lower demand due to Bitcoin's first-mover advantage and overall market saturation.
Ether ETFs on Fast Track for July Launch
On Jun. 25, investment manager VanEck filed form 8-A for its spot Ether (ETH) exchange-traded fund (ETF) with the United States Securities and Exchange Commission (SEC), bringing the ETF one step closer to live trading. This filing led senior Bloomberg ETF analyst Eric Balchunas to speculate that spot Ether ETFs could start trading as early as Jul. 2, 2024.
Balchunas' prediction was mainly based on VanEck’s previous 8-A filing for its Bitcoin ETF, which launched on the market just seven days after filing. Earlier in June, Balchunas predicted an early July launch for the ETF based on the lack of commentary from SEC staff on the applicants’ S-1 filings. He suggested that this was likely because no major issues were identified, which could speed up the listing process.
However, SEC Chair Gary Gensler has a more cautious timeline in mind, and suggested that listing Ether ETFs on stock exchanges could take months and may not happen until September 2024, depending on the response times of the applicants.
The approval of a spot Ether ETF in the United States surprised a lot of people as it represents a big shift in policy from the current administration. In the context of the 2024 election year, cryptocurrencies have taken center stage as presidential candidates try their best to attract pro-crypto voters. According to the Stand With Crypto political action committee (PAC), approximately 52 million Americans hold crypto, making them an important voting factor.
Taking advantage of this election year's opportunities, industry executives have started a number of initiatives to engage the voting public, including Gemini exchange deciding to facilitate donations to pro-crypto candidates and the creation of the Bitcoin Voter Project, which is a nonprofit focused on Bitcoin education and awareness.
Gensler: Ethereum ETF Approval Moving Smoothly
During a one-on-one interview at the Bloomberg Invest Summit in New York, SEC Chair Gary Gensler mentioned that the approval process for the ETH ETF applications is going smoothly. However, Gensler is still uncertain about the exact timing for when these products will begin trading, and stated that asset managers have to provide proper disclosures before launch. Gensler did previously mention that ETH ETFs are likely to start trading this summer.
Last week, several potential issuers of spot ETH ETFs, including financial giant BlackRock, submitted amended registration statements that included more details about fees and seed investments. The SEC had initially surprised the cryptocurrency industry by unexpectedly approving 19b-4 forms in May, but this was only the first step in the approval process, which now requires the agency to approve numerous S-1 registration forms to actually start the trading of spot Ethereum ETFs.
Ethereum ETFs to Attract $15B in 18 Months
Bitwise CIO Matt Hougan predicted that spot Ether ETFs will attract $15 billion in net inflows within their first 18 months of launching in the U.S. Hougan based his prediction on ETH’s relative market capitalization compared to Bitcoin (BTC), data from international exchange-traded product markets, and the role of the carry trade.
Spot Bitcoin ETFs reached $15 billion in net inflows earlier this month, after just five months of trading. Hougan expects investors will allocate towards spot Bitcoin and Ethereum ETFs roughly in proportion to their market caps, with Bitcoin at $1.2 trillion and Ether at $407 billion, resulting in a 75% weighting for Bitcoin and 25% for Ether. He also compared data from Bitcoin and Ethereum ETP markets in Europe and Canada, which show similar AUM ratios of 78% for Bitcoin and 22% for Ether.
Currently, spot Bitcoin ETFs manage over $50 billion in assets, and Hougan expects this to reach at least $100 billion by the end of 2025 as the products mature and are approved on platforms like Morgan Stanley and Merrill Lynch. Using the $100 billion figure as a baseline, he estimates spot Ethereum ETFs would need to attract $25 billion in 18 months to reach parity, excluding the $10 billion expected from the Grayscale Ethereum Trust's conversion on launch day.
Additionally, he mentioned the impact of the Bitcoin carry trade, where institutional investors arbitrage the difference between spot and futures prices, contributing around $10 billion to spot Bitcoin ETF AUM. He does not expect the same dynamic for spot Ethereum ETFs.
While some argue Ethereum ETFs may underperform due to the lack of native staking features, Hougan considers staking income negligible and unlikely to affect demand. Considering all of these factors, Bitwise lowered its estimate for net inflows into spot Ethereum ETFs to $15 billion.
ETH ETFs to See Lower Demand than BTC ETFs
The Bitwise CIO is not the only person who believes ETH ETFs will not perform quite as well as Bitcoin ETFs. Spot Ether ETFs, once approved for trading, are expected to attract demand similar to Bitcoin ETFs, albeit on a smaller scale, according to a research report by broker Bernstein.
Analysts Gautam Chhugani and Mahika Sapra pointed out that ETH might not experience as much spot conversion due to the absence of an ETH staking feature in the ETF. However, they anticipate that the basis trade, involving the simultaneous purchase of the spot ETF and sale of the futures contract, will contribute to healthy liquidity over time.
The report also touched on ETH's growing role as a primary tokenization platform for stablecoin payments and the tokenization of traditional assets and funds. Bernstein also expects the regulatory environment for digital assets to improve, particularly as the U.S. elections approach, with increasing odds of a pro-crypto Republican victory.
Despite a recent downturn in crypto markets, Bernstein believes that the structural adoption cycle remains strong. Contrastingly, JPMorgan projected much lower demand for spot Ether ETFs compared to Bitcoin ETFs because of Bitcoin's first-mover advantage and the potential saturation of overall demand for crypto exchange-traded funds.
