Ethereum ETF to Launch in the US in July: What You Need to Know Before Trading Begins
Approximate Date Announced for the Launch of ETF Shares for Ethereum
The tentative approval date for exchange-traded funds (ETFs) for the second-largest cryptocurrency has been revealed. How is the market reacting and what are traders expecting after the start of trading?
The price of Ethereum, the second-largest cryptocurrency by market capitalization, reached $3,500 per coin on the night of July 16. This happened after news emerged about the imminent approval of ETFs based on spot ETH in the US. At the time of publication, the price of Ethereum had dropped below $3,400, erasing the overnight gains.
The catalyst for the price surge was the information that the US Securities and Exchange Commission (SEC) might approve "Ethereum" ETFs as early as next week. This was reported by Bloomberg's ETF market analyst Eric Balchunas. He clarified that the SEC had finally asked issuers to submit revised applications for fund registration by Wednesday.
According to him, trading in spot Ethereum-based ETFs in the US could begin as early as July 23, provided there are no "last-minute unforeseen issues." All eight candidate funds are expected to be approved simultaneously on July 22, with trading starting the next day, Reuters reports, citing its sources. Previous expert estimates had set the approval timeline to "by July 4."
Since the approval of spot Bitcoin ETFs in January of this year, numerous financial institutions, including financial giants BlackRock and Fidelity, have been seeking permission to create cryptocurrency ETFs. Their goal is to offer investors the opportunity to trade Ethereum through fund shares without directly dealing with the cryptocurrency.
Regardless of the timing, analysts are confident in a positive decision from regulators, predicting high interest in spot "Ethereum" funds. The most optimistic forecasts suggest that net capital inflows in the first year of trading in such ETFs could reach $45 billion.
New forecasts from market experts turned out to be much more restrained. Martin Leinweber, a digital asset product strategist at MarketVector Indexes, stated that he expects much more modest inflows into the new "Ethereum" ETFs and greater ETH price volatility due to the smaller market size compared to Bitcoin, according to comments to Reuters.
Thomas Perfumo, head of strategy at Kraken cryptocurrency exchange, believes that capital inflows do not need to reach the level of Bitcoin ETFs to be considered successful. Since the debut of spot Bitcoin ETFs on exchanges, net capital inflows into these funds have totaled over $16 billion, and funds now manage bitcoins worth over $56 billion, which funds buy to back the shares. This is about 4.5% of the existing coins.
Analysts at Citi Bank expect inflows of 30-35% of the inflows into Bitcoin-based funds, or $4.7 billion to $5.4 billion in the first six months of trading. Coindesk, citing bank representatives, wrote that one of the reasons for this flow is the lack of opportunities to use ETH, held to back spot Ethereum ETFs, in staking.
Through staking, holders of certain coins can use them for passive income without selling. The process involves locking up crypto assets for a certain period to gain validator status in the blockchain network. Bitcoin lacks staking capabilities, whereas Ethereum allows it. However, the launch of such funds largely depends on the regulatory status of Ethereum in the US, where the SEC may equate ETH to unregistered securities. For this reason, ETF issuers have refrained from using staking.
- Market Volatility
Expectations of traders regarding the decision on "Ethereum" spot ETFs in the US have led to increased volatility in Ethereum markets. Analysts are also considering the potential impact of ETH-ETFs on the broader crypto market, including Bitcoin.
In derivatives markets, uncertainty is rising, reflected in traders hedging their positions using short-term ETH options contracts. Analysts at Kaiko noted, based on Coindesk information, that their conclusions are based on the difference between contracts expiring on July 19 and contracts expiring on July 26.
An option is a contract between a buyer and seller to buy or sell an asset (e.g., stocks or cryptocurrencies) at a specified time for a predetermined price. Traders often use this type of derivative to hedge their trading positions against market stress.
Representatives of the Bybit exchange, together with the analytical company BlockScholes, made similar observations to Kaiko: "The main results show that investors are increasingly optimistic about ETH, especially ahead of the imminent launch of the first ETFs in the US. This optimism is reflected in the sustained premium for ETH volatility compared to BTC, which persists amid increased market activity."
Experts believe that the "Buy the rumor, sell the news" principle should not be forgotten, where markets behave oppositely to the dynamics after the actual event occurs.
Market observers also note that the approval of spot Ethereum ETFs could lead to a repeat of the history with the launch of Bitcoin funds in January. At that time, in the first two weeks of trading these funds, the BTC price fell by more than 20%, with an outflow of over $2 billion from Grayscale's fund.
The Grayscale Bitcoin Trust (GBTC) has been a private trust for accredited investors since 2013. By the time the trust was converted into an ETF in January 2024, the company had accumulated about $25 billion in BTC.
The Grayscale Ethereum Trust (ETHE) is a similar product to GBTC, also in the process of converting to an ETF. It holds nearly $11 billion in ETH.
Thus, traders, investors, and experts have mixed expectations for the Ethereum market following the approval of spot ETFs. On Polymarket, a platform for betting on events, participants in the "Will ETH hit an all-time high in 2024?" bet are in an equilibrium position. More than $410,000 in liquidity is split as follows: 54% for, 46% against.
- Comparison with Bitcoin ETF:
1. Approval Timeline :
- Bitcoin ETF : Approved in January 2024.
- Ethereum ETF : Expected approval in July 2024.
2. Market Size :
- Bitcoin : Larger market size, leading to substantial inflows and less volatility.
- Ethereum : Smaller market size, expected to result in more volatility and modest inflows.
3. Staking :
- Bitcoin : Does not support staking.
- Ethereum : Supports staking, but ETFs will not utilize this feature due to regulatory concerns.
4. Capital Inflows :
- Bitcoin ETF : Over $16 billion in net capital inflows since debut, managing bitcoins worth over $56 billion.
- Ethereum ETF : Expected inflows of $4.7 billion to $5.4 billion in the first six months, with potential total inflows reaching $45 billion in the first year.
5. Market Reaction :
- Bitcoin ETF : Initial launch led to a 20% drop in BTC price within the first two weeks.
- Ethereum ETF : Mixed expectations, with potential for increased market volatility and significant inflows, but also possible price corrections post-launch.
6. Investor Sentiment :
- Bitcoin ETF : Strong inflows and sustained interest from major financial institutions.
- Ethereum ETF : Optimistic sentiment reflected in option markets, with higher volatility premiums compared to BTC.
The launch of Ethereum ETFs follows the path paved by Bitcoin ETFs but with differences in market dynamics and regulatory considerations that could influence their initial performance and overall impact on the cryptocurrency market.
