(Kitco News) – Following the successful launch of multiple spot Bitcoin (BTC) exchange-traded funds (ETFs) in the U.S. in January, crypto investors turned their attention to Ethereum (ETH), which received a hasty, last-minute approval for spot Ether ETFs on May 23.
The approval was conditional on asset managers filing all necessary follow-up paperwork, and with most succeeding in that task, market watchers now predict that the first spot Ether ETFs could start trading before July 4.
While the ecosystem is excited to see the launch of ETFs for another leading cryptocurrency on U.S. markets, many analysts have sought to temper expectations for how they will perform, warning that demand will be far less than what was seen for Bitcoin.
Source: Steno Research
But according to a Thursday report from Steno Research, “The market's outlook on the upcoming Ethereum spot ETFs is overly pessimistic,” and the firm anticipates “a net inflow of $15 to $20 billion within the first year, as Ethereum possesses qualities that appeal to Wall Street.”
For comparison, Galaxy Research estimates $5 billion of net inflows into spot Ether ETFs within the first five months, while Bitwise Asset Manager anticipates $15 billion in net inflows within the initial 18 months.
“Rumor has it that the ETFs are likely to launch next week, possibly on Tuesday, July 2,” Steno Research analyst Mads Eberhardt said. “This speculation follows several amended S-1 filings submitted by the issuers in recent weeks, which have received minimal comments from the SEC. The expectation is that the ETFs will go live the day after the SEC approves the S-1 filings.”
“Recently, there has been intense debate among crypto thought leaders about whether the Ethereum ETFs will achieve success similar to the recently launched U.S.-based Bitcoin ETFs,” Eberhardt noted. “Most experts are skeptical about the prospects for the Ethereum ETFs. Notably, Bloomberg ETF analysts Eric Balchunas and James Seyffart have predicted that the Ethereum ETFs will capture only 10% to 20% of the inflows that Bitcoin ETFs have seen. This prediction is significant as these analysts are highly regarded in the market.”
He noted that a 10% to 20% share of the Bitcoin spot inflow, which totaled roughly $14.439 billion over six months, “would equate to around $1.5 to $3 billion for the Ethereum spot ETFs within the same period,” and said it “would render the Ethereum spot ETFs unsuccessful, especially when compared to the highly successful Bitcoin ETFs.”
The report highlighted that, due to Ether’s lower market capitalization and liquidity compared to Bitcoin, even a smaller inflow into ETH ETFs would have a more significant impact on its value.
Eberhardt said that Ether’s future price performance is now tied to the fate of how the spot ETH ETFs perform, noting that a “Strong ETF performance will not only create direct buying pressure but also stimulate indirect buying, encouraging other market participants to acquire Ether if the ETFs show substantial net inflow.”
“Despite the general market pessimism about Ethereum spot ETFs, we remain as optimistic as ever,” he said. “We continue to forecast a net inflow between $15 billion and $20 billion in the first 12 months, even considering the outflow from the Grayscale Ethereum Trust. This is compared to our expected net inflow of $30 billion to $40 billion for Bitcoin spot ETFs in their first year.”
“Given this strong anticipated Ethereum inflow, along with other factors, we predict Ethereum will reach at least $6,500 later this year,” Eberhardt said. “If our assessment of a strong Ethereum ETF inflow is correct, the ETH/BTC ratio should increase significantly. We maintain our prediction that ETH/BTC will hit 0.065 later this year.”
Offering the opposite view was Andrew Kang, a founder and partner at Mechanism Capital, who said that he expects Ether ETFs to pull in 15% of what Bitcoin ETFs did. He added that he sees ETH price trading between $3,000 and $3,000 before the ETFs launch, and expects the price to slide to the $2,400 to $3,000 range after they launch.
“I even expect the first few weeks of fugazi (delta neutral) flows to be lower for two reasons,” Kang said. “The first being that the approval was a surprise and the issuers have much less time to pitch large holders to convert their ETH to ETF form. The second being that it is less attractive for holders to convert given that they will need to give up yield from staking or farming or utilizing the ETH as collateral in DeFi.”
The one thing that could change this outlook is “If BTC moves to $100k in late Q4/Q1 2025,” Kang said, as “ that could drag ETH along to ATHs, but with ETHBTC lower.”
“In the very long run, there are developments to be hopeful about and you have to believe that Blackrock/Fink are doing a lot of work to put some financial rails on blockchains [and] tokenize more assets,” he said. “How much value this translates into for ETH and on what timeline is uncertain.”
Kang added that he expects “a continued downtrend for ETHBTC with the Ratio over the next year to range between 0.035 to 0.06. Even though we have a small sample size, we do see ETHBTC making lower highs each cycle, so this should be no surprise.”
According to MN Trading founder Michaël van de Poppe, the launch of an Ethereum ETF is “the most underhyped and undervalued event of the year, but probably the most significant one.”
“If we go back in time, then the Bitcoin ETF was the big anticipated event of the year as the Bitcoin ETF applicants have been trying to get the ETF for multiple years,” Poppe said. “After the big win of Grayscale against the government, everything started to speed up significantly, through which the ETF got approved and trading went live.”
“The Ethereum ETF is basically everything in reverse,” he said. “Zero expectations, zero hype and if there is any expectation, then it seems like we’re having a negative estimation where investors expect the Ethereum ETF to go down to, potentially, areas of $2,000.”
Poppe said that while he does think that inflows into spot Ether ETFs will be “significantly less” than what was seen with Bitcoin ETFs, “the impact on Ethereum can be significantly larger than the Bitcoin ETF in percentage-terms, as the stock-to-flow of Ethereum is less than that of Bitcoin due to the huge amount of staked Ether and the deflationary concept of Ethereum.”
“It’s a giant, compliant settlement layer and the foundation of the Web 3.0 ecosystem,” he noted.
Touching on the ETH/BTC ratio, Poppe observed, “Given that the markets have been going into the approval of a few weeks ago with a super negative sentiment it has marked the actual low on the pair between Ethereum and Bitcoin, and is up more than twenty percent since.”
“The bull market has already started and can only accelerate even more if Ethereum is breaking through the area of 0.06 BTC,” he said. “If that happens, we can expect a huge influx into the entire Ether ecosystem, which basically means that projects like Arbitrum and Optimism are reversing really soon as well.”
Expanding beyond cryptocurrency-related developments, Poppe said that both Bitcoin and Ether are expected to trend higher and receive more attention from investors in the second half of 2024 due to the declining state of the U.S. economy.
“More and more negative data is coming in on the economic strength in the U.S., through which the arguments for a reversal on crypto is on the horizon,” he said. “It’s just a matter of time and then we’re going to be seeing a big influx coming into Bitcoin, Ethereum, and the whole ecosystem.”
