Recent projections suggest Ethereum (ETH) exchange-traded funds (ETFs) could attract up to $10 billion in new inflows, potentially driving ETH prices to new all-time highs. Concurrently, Ethereum's co-founder Vitalik Buterin addressed key challenges and advancements at the Ethereum Community Conference (EthCC) in Brussels, highlighting the blockchain’s strengths and addressing issues such as transaction censorship and staking complexities. Meanwhile, Ethereum faces inflationary pressures, with staking reaching record highs and the total supply increasing, prompting discussions on maintaining its role as a store of value.
Anticipated Ether ETFs to Propel ETH to New Heights, Foresees MV Global's Tom Dunleavy
In a recent interview, Tom Dunleavy, managing partner at crypto investment firm MV Global, predicted that the launch of Ethereum exchange-traded funds (ETFs) will usher in up to $10 billion in new inflows in the months following their debut. This influx of capital is expected to drive ETH prices to unprecedented levels by the end of the year. Dunleavy’s forecast comes as the crypto market anticipates regulatory approval for eight spot Ethereum ETFs, which could start trading imminently.
Dunleavy highlighted the significant impact that Bitcoin ETFs have had since their introduction, drawing a parallel to the potential for ETH ETFs. “We saw $15 billion in flows for Bitcoin. I think we’re probably going to see $5 billion to $10 billion for Ethereum,” he stated. He expects this surge in investment to propel Ethereum prices to new all-time highs by early Q4.
Eight spot ETH ETFs are currently awaiting final approval from U.S. regulators. Once greenlit, these funds will join an existing lineup of Bitcoin ETFs, which have collectively amassed approximately $15.9 billion since their inception in January. Dunleavy anticipates that ETH ETFs will attract around $1 billion per month as a base case for the foreseeable future.
Market Dynamics and Price Sensitivity
According to Dunleavy, the nature of Ethereum’s availability will amplify the impact of ETF-driven demand on its price. “Compared to BTC, ETH is less available on exchanges, meaning thinner order books and less to purchase,” he explained. This scarcity, combined with the influx of ETF investments, will likely make Ethereum’s spot price more responsive to buying pressure than Bitcoin’s.
Dunleavy’s optimism is rooted in historical data. He noted that the launch of the BTC ETF led to a 36% price increase from its January 10 launch date to its peak, with over 50% appreciation from the time of initial speculation. He believes a similar pattern will unfold for ETH, especially given its appeal to traditional investors.
One of the key factors driving this anticipated growth is ETH’s evolving narrative in the financial markets. “We believe that there will be strong buy pressure with a much more clear narrative that traditional investors can understand. ETH has cashflows. It can be described as a tech stock, the app store of crypto, or an internet bond,” Dunleavy elaborated. This clear, tangible description makes it an easier sell for financial advisors compared to the abstract concept of “digital gold” often associated with Bitcoin.
Dunleavy’s insights also touch on the changing dynamics within the crypto market. So far this year, ETH’s performance has lagged behind BTC’s, with more significant drops during market downturns. Despite this, he cautioned that a rebound in ETH’s performance might not necessarily benefit altcoins due to the distinct nature of institutional and retail markets in the crypto space.
A critical factor in Dunleavy’s analysis is the dwindling supply of Ethereum available on exchanges, as more ETH is being locked in staking contracts. Data from Coin Metrics supports this trend, highlighting the decreasing availability of Ether for trading. This contraction in supply, combined with rising demand from ETFs, sets the stage for a significant price surge.
As Ether ETFs Near Approval, Staking Hits Record Highs and ETH Faces Inflationary Pressure
While the U.S. moves closer to approving ETH ETFs, the cryptocurrency market is witnessing significant changes. The amount of Ethereum staked is approaching a record high, which is helping to keep the circulating volume in check despite the overall growth in ETH supply. This development comes amid concerns about Ethereum's inflationary nature and its implications for its role as a store of value.
Julio Moreno, CryptoQuant's head of research, highlighted in a recent note that the total number of staked ETH has reached near its all-time high, standing at 33.3 million ETH, which is approximately 27.7% of the total supply. This increasing amount of staked Ethereum plays a crucial role in managing the circulating supply, effectively reducing the volume available for trading.
The increasing supply of Ethereum indicates its return to an inflationary asset, which undermines its capability to act as a long-term store of value. Moreno noted, "ETH supply is growing again, although slowly. But the narrative of ultra-sound money has ended. The total supply is at its highest level since December 11, 2023." This shift raises concerns among investors who have viewed Ethereum as a deflationary asset, especially following the implementation of Ethereum Improvement Proposal (EIP) 1559, which introduced a fee-burning mechanism.
To counter the inflationary pressure, two primary mechanisms are in play: staking and burning. Staking locks Ethereum for a fixed period, reducing the circulating supply and helping to stabilize the market. Burning, on the other hand, involves permanently removing a portion of the transaction fees paid by users from circulation. Both mechanisms are essential in managing ETH’s supply and maintaining its value proposition.
Despite the inflationary concerns, Ethereum's liquidity remains robust. Moreno pointed out that ETH spot trading volume has been 80%-90% of Bitcoin's (BTC) volume in recent weeks, showcasing ETH’s strong market presence. This data suggests that Ethereum could be as liquid as Bitcoin, reinforcing its position as a major cryptocurrency.
Locked Supply in Smart Contracts
Data from CoinMetrics reveals that approximately 12% of ETH's supply is being utilized in smart contracts or bridges that facilitate inter-blockchain connections. When combined with the staked tokens, nearly 40% of the total Ethereum supply is "locked" and not actively traded. This significant portion of non-circulating supply has substantial implications for Ethereum's market dynamics and price stability.
The race to launch an ETH ETF is intensifying, with market participants eagerly anticipating regulatory approval. Polymarket bettors are optimistic, predicting that Ethereum ETFs will start trading before July 26. Recently, Invesco and Galaxy announced a 0.25% management fee for their proposed spot ETH ETFs, slightly higher than VanEck's 0.20%. However, the SEC must still provide feedback on the current applications, and issuers need to file final amended forms with all required details before trading can commence.
Market sentiment regarding ETH’s performance is mixed. On Kalshi, bettors are giving a 65% chance that Ethereum will outperform Bitcoin, reflecting confidence in ETH’s potential. However, they are 95% certain that Ethereum will not hit an all-time high before Bitcoin, indicating skepticism about the altcoin’s immediate upward trajectory.
As the approval of Ethereum ETFs looms, the cryptocurrency market is closely monitoring the evolving dynamics of ETH's supply and demand. The record-high levels of staked Ethereum and the substantial locked supply in smart contracts are key factors influencing its price and liquidity. Despite inflationary pressures, the altcoin leader's strong market presence and the impending introduction of ETFs are expected to drive significant interest and investment. Investors and market participants will be keenly watching for the SEC's decisions and the subsequent impact on ETH's market performance.
Vitalik Buterin Highlights Ethereum’s Strengths and Weaknesses at EthCC Keynote
In a highly anticipated keynote address at the Ethereum Community Conference (EthCC) in Brussels, Ethereum co-founder Vitalik Buterin delivered a comprehensive overview of the current state and future direction of the Ethereum blockchain. Speaking to a packed room of approximately 1,100 attendees, Buterin focused on the need to harden Ethereum as a base layer, emphasizing both its strengths and the challenges it faces.
Buterin began his address by highlighting the robust aspects of Ethereum's ecosystem. He praised its large and reasonably decentralized staking environment, which he described as both international and intellectual. This diverse and global community, Buterin asserted, is one of Ethereum’s core strengths, fostering innovation and resilience.
“Ethereum’s strength lies in its large and decentralized staking ecosystem, and in being a highly international and intellectual community,” Buterin said, setting a positive tone for his talk.
Transitioning to the blockchain’s weaknesses, Buterin did not shy away from the issues that need addressing. One significant challenge is the difficulty of solo staking, which requires a minimum of 32 ETH to become a validator. This high entry barrier can deter potential validators and stakers, limiting participation in the network’s security processes. Additionally, Buterin acknowledged that running a node remains technically complex, posing another hurdle for broader decentralization.
“These issues are very addressable,” Buterin reassured the audience, suggesting that solutions are within reach and emphasizing the importance of simplifying the protocol to enhance usability and security.
Buterin elaborated on a series of technical improvements designed to address these weaknesses. He advocated for “protocol simplification,” arguing that a robust ecosystem should be straightforward and avoid unnecessary complexity.
“If you want a robust ecosystem, it needs to be simple,” Buterin stated. “It should not have these, like, 73 random hooks and some kind of backwards compatibility because of some random dumb thing that this random guy called Vitalik came up with in 2014.”
Concerns About Transaction Censorship and 51% Attacks
Addressing the issue of transaction censorship, Buterin expressed concern about maintaining the integrity and openness of the blockchain. He emphasized the need for vigilance and proactive measures to prevent censorship from undermining Ethereum’s core principles.
Buterin also touched on the potential threat of a 51% attack, where a malicious actor gains control of more than half of the network’s computational power. In such a scenario, Buterin suggested that the Ethereum community would need to rally together to force a minority soft fork and slash the attacker. However, he admitted that this approach relies heavily on coordination and shared ideology, which may be challenging to achieve consistently over time.
“It depends on a lot of assumptions around coordination, ideology, various other things, and it's not clear how to do something like that as well in 10 years,” Buterin remarked, highlighting the complexity of maintaining network security in the long term.
One of Buterin’s concrete proposals was to increase the quorum threshold for validating transactions from 75% to 80%. This measure aims to make recovering from chain attacks more manageable and prevent the finalization of compromised chains.
“I think there's value in really doubling down on these strengths, and at the same time, recognizing and fixing our inadequacies and making sure that we actually live up to our very high standards,” Buterin told the crowd, underscoring his commitment to continuous improvement and high standards for the Ethereum blockchain.
Buterin’s appearance at EthCC continues a tradition of thought-provoking presentations. In 2023, he addressed challenges surrounding "abstraction," and the year before, he spoke about Ethereum ahead of the significant network upgrade known as the Merge. This year’s focus on hardening the Ethereum base layer and addressing its weaknesses reflects his ongoing dedication to enhancing the blockchain’s robustness and functionality.
