Ethereum ETFs: A Huge Step Towards Crypto Adoption

Learn more about Ethereum ETFs and their impact on crypto adoption!

The spot Bitcoin ETFs have already been around for quite some time, amassing huge amounts of Bitcoin and showing trading volumes nobody ever expected them to have. As of July 2024, the US spot Bitcoin ETFs hold $50 billion in BTC and have an average trading volume of $100 million per day.

Naturally, asset managers like Blackrock and Fidelity are making hundreds of millions of dollars in fees from these ETFs, and they want more. That’s why we witnessed a truly legendary thing in May 2024 — the government approved a list of spot Ethereum ETFs!

In this article, we’ll take a look at how the approval of these financial instruments will impact the crypto market and Ethereum in particular. Enjoy!

The SEC Approves Exchange Listings of Spot Ethereum ETFs

On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of spot Ethereum ETFs on multiple stock exchanges. Up until that point, only Ethereum futures ETFs have been approved for trading in the US.

Before going forward, let’s see what an ETF really is.

An ETF, or an exchange-traded fund, is an investment product that is traded on stock exchanges, much like individual stocks. It holds assets and generally operates with an arbitrage mechanism designed to keep its trading close to its net asset value.

In simpler terms, an ETF is an investment fund that buys assets (e.g., Gold, Bitcoin, Ethereum) and emits shares based on the total valuation of its assets.

Investors who can’t hold the underlying asset are simply buying a share of the ETF, which usually reflects the underlying asset’s market performance.

The Ethereum ETFs will be traded on three big US stock exchanges:

• NYSE Arca: Grayscale Ethereum Trust and Bitwise Ethereum ETF
• Nasdaq: Blackrock iShares Ethereum Trust
• CBOE BZX: VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund and Franklin Ethereum ETF

The ETFs listed on CBOE are going live on the 23rd of July, while the rest are yet to be announced. In the meantime, the asset managers are deciding on the fees and the seed investments.

For now, the “fee war” is still going on, with Franklin Templeton disclosing a 0.19% fee and VanEck disclosing a 0.2% sponsor fee. BlackRock, the biggest player in this field, is expected to announce a sub-30 basis point sponsor fee.

In terms of seed investments, both Grayscale and Invesco Galaxy disclosed a $100.000 seed share purchase, while Fidelity put up $4.7 million. Blackrock reported a $10 million seed funding for its ETF.

Ethereum ETF Approval: A Game Changer?

The approval of Ethereum ETFs has many benefits for the industry, but perhaps the biggest one is the insinuation that ETH is a commodity rather than a security.

The SEC has been going on and off with the status of certain cryptocurrencies (e.g., ETH, BNB, XRP, SOL), trying to determine if they are a security or a commodity.

Gary Gensler, one of the bigges antagosnists of crypto in the last several years, has been clearly dodging the question about ETH being a security or not, but we know for sure that the SEC has tried to attribute Proof of Stake tokens to securities under the Howey Test.

Now, with the approval of these Ethereum ETFs, the SEC did not explicitly state that Ethereum is a commodity. However, it defines the ETF products as “commodity-based trust shares.” This wording largely puts to bed the debate over how to classify unstaked Ethereum.

Based on this classification, Coinbase (and possibly other companies in the future) has filed an appeal in its case against the SEC.

Basically, the crypto exchange noted a division between lawmakers and the SEC in how they view its jurisdiction over crypto. The SEC sued Coinbase last year for allegedly operating as an unregistered security exchange, broker, and clearing agency.

Benefits of Ethereum ETFs

Besides the political and legal benefits of an Ethereum spot ETF, there are three more advantages that a simple investor can be happy about:

• Accessibility: Traditional investors, who may be hesitant to navigate the complexities of cryptocurrency exchanges, can now buy and sell Ethereum ETFs through their existing brokerage accounts. This eliminates the need for crypto wallets and reduces the technical barriers to entry.
• Legitimacy: The listing of Ethereum ETFs on major stock exchanges lends credibility and validation to the entire crypto market. This recognition by traditional financial institutions helps bridge the gap between traditional finance and the emerging world of digital assets.
• Liquidity: Increased participation by institutional and retail investors through ETFs could significantly boost Ethereum’s liquidity. This means smoother, less volatile transactions, benefiting everyone from individual traders to large-scale funds.

Ethereum ETF Price Impact

The launch of the Ethereum spot ETF in the US will, of course, have a huge impact on the cryptocurrency’s price both in the long term and in the short term. But how big will the impact be, and what volatility levels should we expect?

Bitwise suggests that while initial price action might be volatile due to money flowing out of the Grayscale Ethereum Trust as it converts to an ETF, Ethereum’s price could break the $5,000 resistance level by the end of the year. This optimism is based on expectations of substantial inflows into the new Ether spot ETFs.

The assumptions are based on the historical data of the Bitcoin spot ETFs launch in the US. The launch of these ETFs has demonstrated a positive impact on Bitcoin prices, with a 25% increase since January and a more than 110% rise since the market began pricing in a potential launch in October of the previous year.

The impact on ETH might be even more significant for several reasons. Ethereum’s short-term inflation rate is currently 0%, compared to Bitcoin’s 1.7% at the time of its ETF launch. Limited supply and substantially higher demand mean price increases in almost all scenarios.

Additionally, Ethereum stakers, unlike Bitcoin miners, do not have to sell their holdings, with 28% of ETH already staked and effectively off the market.

Other crypto analytics firms, including Steno Research and K33 Research, have also provided bullish forecasts for Ethereum. Steno Research predicts that Ethereum could reach $6,500 later this year, driven by ETF inflows and other favorable market conditions.

K33 Research forecasts inflows of $4 billion within the first five months of trading, which could result in the accumulation of 800,000 to 1.26 million ETH, leading to a supply crunch and price appreciation.

XRP, SOL: Who’s Next in Line?

The approval of both Ethereum and Bitcoin spot ETFs made it obvious that financial regulators are starting to acknowledge the legitimacy of crypto.

With the backing of major asset managers like BlackRock and Fidelity, it is probable that the next cryptocurrencies to receive ETF approval are XRP and SOL.

Solana, an Ethereum rival, is the fifth-largest cryptocurrency by market cap. Given its similarities in underlying technology to Ethereum, many believe that the SEC would be hard-pressed to deny Solana a spot ETF now that Ethereum has moved toward approval.

As of July 9, VanEck and 21Shares applied for Solana futures ETFs, with Bloomberg analysts predicting the start of Solana spot ETF filings by mid-March 2025.

Ripple’s XRP is another strong candidate for a spot ETF. XRP still remains a top 20 cryptocurrency by market capitalization and has a strong underlying technology used by many mega banks like Santander and JP Morgan.

The ongoing legal battles between Ripple and the SEC regarding the classification of XRP as a security or commodity will play a crucial role in determining its eligibility for an ETF.

Standard Chartered believes that Solana or Ripple will receive a spot ETF as soon as 2025:

“For other coins (e.g., SOL, XRP), markets will look ahead to their eventual ETF status as well, albeit this is likely a 2025 story, not 2024 one” — Geoffrey Kendric

Cryptocurrency Pushes To Mass Adoption

After years of legal challenges and resistance from the SEC, the crypto industry seems to be receiving a more favorable response from the regulatory body.

The SEC’s softer stance, combined with shifting attitudes among various politicians and parties, suggests a potential new era of crypto acceptance in mainstream finance.

Former president Donald Trump recently reversed his position on cryptocurrency, expressing support on social media and even accepting crypto donations for his 2024 presidential campaign.

There is also speculation that the SEC’s recent decision to move forward with approving spot Ethereum ETFs was influenced by political pressure from President Joe Biden’s administration.

Regardless of the reasons, it is clear that no one wants to be left behind in the crypto wave, which bodes well for the future of the industry.