How Spot Ethereum ETF Approval Could Impact ETH Prices

The ETF launch is still pending the completion of all necessary procedures. Issuers must finalize their S-1 forms, which shall include comprehensive details about the fund such as its investment objectives, strategies, management practices, risks, and financial information. Only after these details are approved can shares be offered to investors. Some ETF experts predict this could take from several weeks to a few months, possibly pointing to an early July 2024 launch.

SEC Chair Gary Gensler noted that the timeline depends on how quickly issuers update their applications. Ironically, this comes as the SEC extended its decision-making on approving the spot Ethereum ETFs to the last possible moment, which has led to skepticism about the likelihood of approval.

Reflecting on the introduction of spot Bitcoin ETFs, initial rumors that BlackRock would submit an application soon became a reality, prompting other potential issuers to enter the fray. The SEC actively collaborated with these applicants, and its chair suggested a favorable view of BTC as a commodity, bolstering analysts' confidence in potential approval. Anticipation alone caused BTC's price to surge about 1.5 times in the six months leading up to the first approval.

BTC Price Dynamics Before and After the Approval of Spot Bitcoin ETFs Source: WhiteBIT

When spot Bitcoin ETFs were officially approved on January 10, a classic ‘Sell The News' effect occurred, and BTC's price dropped from approximately $47,000 to $42,000. However, within a few months, Bitcoin went on to update its ATH ($69,000).

The Impact and Role of Grayscale 

It's crucial to recognize that the journey with spot Bitcoin ETFs has not always been smooth. There have been periods where these ETFs experienced significant outflows, adversely affecting the BTC price. Notably, systematic substantial outflows have been observed from the Grayscale Bitcoin Trust (GBTC), and there are specific reasons for this. 

Inflows into U.S. Spot Bitcoin ETFs Have Not Always Been Favorable Source: sosovalue.xyz

This fund, which was not a newly created spot ETF, managed over $20 billion in BTC. Its investors have faced challenges in liquidating their investments due to limited liquidity and the absence of a direct share redemption mechanism. In contrast, spot ETF shareholders can liquidate their shares for cash, prompting some to shift their investments away from GBTC. 

One reason for the shift could also be less competitive management fees (ETFs charge management fees and thus compete with each other, potentially causing investors to switch from one ETF to another). Additionally, some of GBTC’s clients were bankrupt companies compelled by court proceedings to liquidate assets to settle with creditors.

This information sheds light on how the dynamics surrounding ETFs could impact ETH prices, particularly as the existing Ethereum Grayscale Trust transitions into a spot ETF. According to Arkham Intelligence, this entity manages over $10 billion in ETH (as of this writing).

Grayscale Manages 2.969 Million ETH Valued at $10 Billion Source: Arkham Intelligence

It’s also important to note that the emergence of spot Bitcoin ETFs was facilitated by Grayscale's legal victory over the SEC, where the company successfully argued for the right to convert GBTC into a spot ETF. Therefore, while the fund has faced criticism for constant outflows and price pressures, these developments were instrumental in the eventual creation of Bitcoin ETFs.

Market Experts' Predictions on Ethereum ETFs

Eric Balchunas, a well-known ETF analyst from Bloomberg, forecasts that the U.S. market for spot Ethereum ETFs could achieve a volume equivalent to 10%-20% of the spot Bitcoin ETF market, which he considers a strong outcome.

K33 Research analysts estimate that spot Ethereum ETFs in the U.S. could draw between $3.1 billion and $4.8 billion in net inflows during their first five months of operation.

VanEck projects that ETH could reach a price of $22,000 by the end of 2030. They justify this forecast by citing the anticipated impact of Ethereum ETF news, advancements in Ethereum's scalability, and an analysis of existing on-chain data. However, it's important to note that VanEck, as an issuer, might have a vested interest in making such impactful statements to stir market interest.

These projections might have been even more compelling if the spot Ethereum ETFs allowed for the staking of coins managed by the funds. This feature could potentially increase investor returns and, consequently, interest in these ETFs.

This possibility was explored in the applications of some issuers, including Fidelity and Ark Invest/21 Shares. However, these provisions were removed just before the final deadline for SEC decisions, possibly to avoid jeopardizing approval. 

As we observe the influx of institutional investors into the cryptocurrency industry, we can directly see its impact. The markets are navigating through times of high interest rates and regulatory uncertainty, so follow our website and social media accounts to stay updated on all key developments.

Please note, this article is not intended as financial advice and should not be used as the basis for investment decisions. Always remember to DYOR.