Ether's Moment: The Rise of Ethereum ETFs

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Ether might be nearing a major breakthrough. The world’s No.2 cryptocurrency has, until now, stayed in the shadow of bitcoin, which soared to record highs thanks to new U.S. exchange-traded funds (ETFs) designed to track its price.

However, with similar ETFs for ether poised to enter the market soon, some analysts predict that ether’s price could surpass its previous all-time high of $4,867.60 set in November 2021. ‘Considering that ethereum has about half the spot liquidity compared to bitcoin, it requires less investment to have the same price impact,’ noted Thomas Perfumo, Kraken’s strategy lead.

Despite the growing excitement, the volatile nature of the crypto market remains. Recent developments, including the potential liquidation of assets from the defunct Japanese exchange Mt. Gox, have shaken the market. Other influential factors include U.S. Federal Reserve interest rate projections and the upcoming presidential election.

‘Market participants should brace for a resurgence of volatility in both traditional and crypto markets,’ said Jag Kooner, Bitfinex’s head of derivatives. Regulatory changes and macroeconomic policies will be key determinants of market trends.’

In March, bitcoin surged to new heights, reaching as high as $73,803.25 after the debut of the first spot bitcoin ETFs. Conversely, ether has yet to hit its previous peak, although it peaked at $4,093.7 in the same period. This trend may shift with the arrival of ether ETFs, especially considering that a large portion of ether’s supply is either staked or locked, limiting its availability for purchase.

The impact of ether ETFs is projected to be substantial, though not as significant as that of spot bitcoin ETFs, which have amassed nearly $38 billion in assets. Research by Grayscale Investments suggests that ether ETFs could attract around 25%-30% of the demand drawn by bitcoin ETFs. However, ether’s smaller market capitalization could result in comparable price impacts per dollar spent.

‘We anticipate significant new demand for ether ETFs, interacting with a restricted supply,’ said Zach Pandl, managing director at Grayscale. Additionally, ether can be staked or locked up for yield, which decreases its available supply and could drive prices higher. ‘More demand for ETFs than new supply of bitcoin led to price increases; the situation for ether is even more constrained,’ added Matt Hougan, Bitwise’s chief investment officer.

Market predictions vary, with Standard Chartered forecasting an $8,000 price for ether by year-end and VanEck aiming for $22,000 by 2030. Yet, some analysts caution that the potential effects of ether ETFs may already be factored into current prices, as ether has already risen more than 29% this year.

‘Bitcoin and ethereum are now more richly valued than at the start of bitcoin ETFs; this could mean a slightly lesser effect,’ noted Grayscale’s Pandl.

(Disclaimer: With inputs from agencies.)