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Ethereum ETFs Could be Approved This Week, Will Inflows Rival Bitcoin Funds?

Last Updated May 22, 2024 12:04 PM
James Morales
Last Updated May 22, 2024 12:04 PM
By James Morales
Verified by Peter Henn

Key Takeaways

  • The SEC must either approve or deny Ethereum ETF applications by May 23.
  • Last-minute updates to issuers’ filings have fueled optimism that they could be approved.
  • If they are, inflows could rival or even outpace Bitcoin ETFs.

Since the first spot Bitcoin ETFs started trading in January, 11 funds have attracted net inflows of over $13 billion. This means the funds accumlated $59 billion worth of assets in less than five months.

Amid optimism that the Securities and Exchange Commission could approve equivalent Ethereum funds this week, might they see similar inflows?

Ethereum ETF Hopes Rise

Fueled by increased activity from issuers and exchanges, optimism surrounding the prospect of SEC approval has surged recently.

Several issuers have made last-minute updates to their regulatory filings ahead of a deadline for approval on Thursday, May 23. This recalls the weeks before Bitcoin ETFs were approved, when prospective issuers made a string of changes to their proposals based on feedback from the SEC.

With the regulator seemingly warming to the idea, Bloomberg ETF analysts Eric Balchunas and James Seyffart increased the likelihood of Ethereum ETF approval from 25% to 75%.

If spot Ethereum funds get the regulatory green light on Thursday, they could begin trading by next week.

Ethereum ETF Predicted Inflows Could Reach $45 Billion in a Year

In a recent note to investors, Standard Chartered analyst Geoff Kendrick estimated  spot Ethereum ETFs could experience inflows of $15 billion to $45 billion in the first 12 months after approval.

He said: “As a percentage of market cap, [this] is similar to our estimates of inflows to bitcoin ETFs, which are proving accurate. Based on their performance so far, Bitcoin funds could well register inflows of around $30 billion in their first year.

Although optimism around Ethereum ETFs triggered a strong ETH rally, the asset’s market cap remains less than half of Bitcoin’s. So why would ETFs not mirror the two cryptocurrencies’ total value?

Could ETH ETFs be Bigger than Bitcoin?

To understand why Ether funds could be comparatively more attractive than those that hold Bitcoin, it is worth considering who buys crypto ETFs.

First-quarter filings from ETF issuers reveal that hedge funds, pension funds, banks and even state governments have invested in the new Bitcoin vehicles.

Such highly regulated entities are generally bound by strict rules. These regulations stop them accessing crypto directly via the spot market. They also, traditionally, like investments with predictable returns. 

Although cryptocurrencies are generally considered a volatile asset class, ETH has the advantage that it can be staked for a yield, offsetting the inflationary effect of new coins.

Referring to this yield potential, in March, VanEck Portfolio Manager Pranav Kanade stated that “ETH could make more sense as an asset to more people than Bitcoin does”. From this, he concluded that “the market size for a spot ETH ETF is potentially as big if not bigger than the spot Bitcoin ETF”.

Whether or not asset managers will be allowed to stake Ethereum held in ETFs remains to be seen. Meanwhile, the SEC’s verdict on this issue could have a significant impact on prospective funds’ attractiveness to investors.

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