To the surprise of the markets, the United States Securities and Exchange Commission (SEC) approved…

To the surprise of markets, the United States Securities and Exchange Commission (SEC) approved eight spot ETFs for Ethereum on May 23, sparking a wave of positive sentiment.

But perhaps most surprising is that the price of Ethereum (ETH) barely reacted to the news.

Before the SEC’s announcement on May 23, Ethereum’s price was $3,742.31. It rose to $3,959.28 on May 27 before falling back to $3,859.39 on May 28. A steady upward wave has not yet appeared.

Ether prices have been volatile over the past seven days. Source: CoinGekko

In the days leading up to approval, Ethereum’s value increased by about a third. However, after indications emerged that the SEC may reverse its decision, concerns over Grayscale’s Ethereum Trust (ETHE), which manages $11 billion in funds, have become a significant factor influencing price action.

After seeing months of large outflows from Grayscale Bitcoin Trust (GBTC), which offset the effects of large inflows, markets are now worried about the possibility of a repeat.

In the month since Bitcoin spot ETFs were approved, GBTC saw outflows of $6.5 billion, representing 23% of its assets under management (AUM).

A report from Kaiko Research dated May 27 estimates that if history repeated itself, ETHE’s average daily outflows would reach $110 million.

Source: AP_Abacus

Industry Forecast

Tony Matthews, co-founder of the LAOS Network, a layer one platform that enables the creation of assets on chains compatible with the Ethereum Virtual Machine, also predicts significant outflows from ETHE.

“Significant outflows from the Grayscale Ethereum Trust to the new ETF are expected due to the ETF’s higher liquidity, tighter spreads and lower fees,” Matthews told Cointelegraph. “The ETF targets a broader market than ETHE due to lower entry barriers and fees.”

Although Matthews sees similarities between GBTC and ETHE, he also points out a key difference in the importance of these grayscale products to their relative markets.

When the Bitcoin spot ETFs were approved, GBTC held approximately $30 billion worth of Bitcoin (BTC), representing 3.5% of Bitcoin’s market cap. But ETHE only owns $11 billion worth of ether, which represents 2.2% of the market cap.

“Given ETHE’s lower market cap ratio, the impact of ETFs is expected to be relatively greater than that of BTC, as outflows from ETHE to new ETFs are expected to be more limited,” Matthews said.

But according to Matthews, even if there are capital outflows in the short term, the long-term outcome should be positive.

“In the long term, if ETH ETF adoption leads to a sustained flow of funds, the resulting increase in demand should drive prices higher,” he said, adding that the Ethereum network was more attractive for environmental, social and governance (ESG) aspects. targeted investors. Because it only produces a small fraction of the carbon emissions of Bitcoin.

“Since Ethereum operates on a proof-of-stake model (unlike Bitcoin’s proof-of-work), climate-conscious investors may prefer an ETH ETF over a BTC ETF to gain exposure to the cryptocurrency market, which could also impact BTC. ETFs. “

Kurt Hemaker, CEO of the MENA Foundation, the public benefit corporation serving the MENA ZK blockchain protocol, also highlighted the importance of Ethereum’s environmental appeal in its positive long-term outlook.

“For traditional and institutional investors, the additional ESG benefits of an ETH exchange-traded fund will make it an attractive addition to an investment portfolio,” Hemaker said.

Source: Darinen

Mitigating capital outflows

A number of factors can moderate ETHE outflows. While the GBTC example may be somewhat useful, Bitcoin and Ethereum are completely different assets, making the comparison between the two meaningless.

James Toledano, COO of Savl, a self-custodial cryptocurrency wallet, did not rule out ETHE exit pressures, but also highlighted a number of mitigating factors that could stabilize the market.

“Ethereum’s low supply on exchanges may mean that there may not be enough sell-side liquidity to meet all sell orders coming from Ethereum outflows without significantly impacting the price .”

According to Toledano, this limited supply of available tokens “may provide natural support to the price, as any large sell-off would be met with a limited supply available, which could lead to price stabilization.”

Manthan Dev, co-founder of digital asset custodian Palisade, supports Teledano on this point. Like Toledano, Dave believes that the historic drop in Ethereum supply on exchanges could lead to a stabilization of the price, or even an increase despite the outflows.

“This scenario often reflects long-term investment sentiment as investors move ETH into private wallets or stakes, indicating a bullish market outlook,” Dave said.

Other things to consider

The quantity of Ethereum on exchanges is just one more factor among many to take into account,

As Dave says: “Ethereum market behavior is complex and influenced by various factors beyond exchange supply levels. Therefore, while the reduction in exchange supply may mitigate some of the effects of ETHE outflows, it is not the only factor affecting Ethereum market dynamics.

For example, “Ethereum’s transaction fee reduction mechanism reduces circulating supply over time, thereby offsetting some of the selling pressure generated by Ethereum outflows,” Toledano said. With Ethereum 2.0, a large amount of ETH is stored and unavailable for sale, reducing the available supply and mitigating potential price impacts.

Coinbase data shows that 27% of ETH is staked. Source: Coinbase


Source: Chris Kay

Dave also highlighted other markets outside the United States, reiterating the global status of cryptocurrencies.

“Additional to this momentum, the London Stock Exchange is set to list exchange-traded products for the first time later this month, following the FCA’s approval of the prospectuses of WisdomTree (WT) and 21Shares .”

Positive mood

Wherever industry figures make the argument of inflows and outflows, the approval of an Ethereum spot ETF has sparked an eruption of positivity in the market.

“Ultimately, the approval of the ETF is a real boost of confidence in the industry” and opens Ethereum “to a much wider range of potential buyers,” said Jes Holgrave, CEO of the app cross-chain wallet WalletConnect, at Cointelegraph. . “That, combined with the positive headwinds on Ethereum as a whole (…) I think represent positive signals.”

While most numbers were content to simply predict upward price pressure and leave it at that, Oleg Fomenko, co-founder of fitness app Web3 Sweat Economy, gave Cointelegraph his predictions for the price of ETH in the near future.

“The influx of additional institutional funds through approved ETFs will drive prices higher. “I expect that due to this development, the price of Ethereum will probably reach $7,000 in the next three months,” Fomenko said.

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