BlackRock has applied for an ETF for Ethereum. What this means for the price of ETH
How BlackRock's approval of an ETF for Ethereum will affect the cryptocurrency's price
Ethereum is lagging behind bitcoin in terms of growth, and additional factors are affecting the approval of the exchange-traded fund. Breaking down how much traditional investors are interested in the second largest cryptocurrency
BlackRock, the world's largest asset manager, filed an application on Nov. 9 to register an exchange traded fund (ETF) to invest in the Ethereum network cryptocurrency (ETH) with the ability to directly track its underlying spot price. The price of ETH rose sharply when the news broke, jumping nearly 10% from $1,880 before consolidating above the $2k level.
2 029,2 -17,8 (-0,87%)
This is not the first attempt to launch a spot ETF for Ethereum in the U.S. - in September, Ark Invest and 21Shares filed a joint application for such a fund with the SEC, and later Grayscale announced that it had applied to convert its own Ethereum investment trust into a full-fledged ETF. Today, its trust is the world's largest Ethereum investment product, with nearly $5 billion under management. But it was BlackRock's application that triggered a surge in the ETH exchange rate, which until then had been lagging behind bitcoin and even further behind Solana, Chainlink and other leading cryptocurrency tokens.
The instantaneous rise in the price of ETH is similar to the June bitcoin rally, when BlackRock similarly applied to register a spot bitcoin ETF. Such ETFs offer investors a convenient way to invest in cryptocurrencies without having to buy directly from traditional cryptocurrency exchanges and sort out their own wallets. Buying shares of exchange-traded funds is a more familiar form for clients of management companies and pension funds in the U.S., particularly those who are deterred by the technical complexities and security issues associated with buying the actual asset.
What makes a spot bitcoin ETF so important
Various ETFs, including gold, have trillions of dollars in assets under management. In the cryptocurrency community, it is generally accepted that even a small percentage of this capital can potentially impact the global crypto market. If spot bitcoin ETFs are approved, demand for the cryptocurrency will increase: buying shares in the funds involves the delivery of bitcoin as an underlying asset, i.e. its direct purchase in the market, affecting the exchange rate.
In June, the bitcoin rate rose by more than 20%, as many market participants were of the opinion that a management company with such influence and reputation as BlackRock would not apply to launch an ETF without expecting success. At the same time, the regulator, represented by the SEC, has not yet approved any applications for bitcoin spot funds, which have been filed by 12 other management companies, including Fidelity Investments.
- Other conditions
Even if approved by regulators, the actual launch of BlackRock's Ethereum ETF could take up to several months at best, with no guarantee that it will be approved in principle. The SEC has up to 240 days from the time of filing to decide whether to approve the product, which could push the fund's possible launch date to next fall. In addition, there is a key difference in the regulatory status of bitcoin and ether in the U.S., and that could also cause additional delays.
While nearly all stakeholders, including the SEC itself, agree that bitcoin is not a security and does not fall under its jurisdiction, the outlook for Ethereum is less clear. SEC Chairman Gary Gensler has repeatedly dodged the question of interpreting ETH's status as an asset. In June lawsuits against crypto exchanges Binance and Coinbase, the SEC equated a whole list of cryptocurrencies to securities, after which the services Revolut, Robinhood, eToro and Bakkt announced the delisting of several of them. Notably, ETH was not mentioned in any of the lawsuits.
- In the June 5 lawsuit against Binance and the June 6 lawsuit against Coinbase, the regulator named several cryptocurrencies as securities.
- In the first case, they were Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS) and COTI (COTI).
- In the second, they were joined by Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), NEAR Protocol (NEAR), Voyager VGX (VGX), Dash (DASH) and NEXO (NEXO).
- That's not the only factor affecting the launch of an ETF for ether, but the debate over its status could also possibly slow down BlackRock's application. The SEC will likely want to observe how a spot ETF for bitcoin performs first before approving products for other crypto assets.
- Investor optimism
Ethereum occupies a unique place in the world of cryptocurrencies because it acts as a means of accumulating value (like bitcoin), but at the same time has historically had a higher potential for price appreciation. This hybrid model has been confirmed in recent years, with ETH outperforming bitcoin but lagging behind tokens such as Solana's SOL or Binance's BNB.
However, in 2023, the scenario has partly changed: the enthusiasm of traditional investors for the possible emergence of a spot bitcoin ETF has probably made the first cryptocurrency more attractive to them. Ethereum has lagged far behind bitcoin in terms of price momentum, and the network's core fundamentals have barely changed over the year. Despite the fact that "ether" is starting to grow following bitcoin, its average monthly volatility is at its lowest level in the last five years.
Ethereum Volatility Index. Source: buybitcoinworldwide.com
That said, analysts are giving optimistic forecasts. Marcus Thielen, head of cryptocurrency market research and strategy at Matrixport, called the emergence of BlackRock's ETF bid "a nuclear winter for anyone who doubted Ethereum." Large investors, he believes, are already aiming to allocate to cryptocurrency funds.
Thielen noted that despite lagging behind bitcoin, market sentiment indicators show growing interest in ethereum, and transactions in the cryptoasset with a higher beta coefficient could yield more profits. At the same time, the Ethereum ecosystem, according to his observations, is showing signs of revival, indicating a potential bottom for the ETH price.
What is happening in the market is accompanied by an increase in ether trading volume and a rise in the funding rate in perpetual futures for both bitcoin and ETH, reflecting growing optimism among traders, the analyst said.
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