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① From US$40,000 to US$70,000, the approval of Bitcoin spot ETFs has played a good catalyst for the price of Bitcoin.And now, the market is looking forward to further boosting confidence by the approval and comprehensive trading of Ethereum spot ETFs.
② The 19 b-4 forms of 8 spot Ethereum ETFs have been approved by the SEC and are expected to officially start trading after the S-1 registration statement takes effect in a few weeks.The addition of traditional asset management giants such as BlackRock is expected to bring Ethereum into the vision of more traditional investors.
③ The cost and liquidity of ETFs, the background and reputation of the issuer are important considerations for investing in Ethereum ETFs.The crypto market is currently ushering in a new innovation cycle. Coupled with the currency cycle where the macro has improved and liquidity is expected to be further released, and the upcoming US election cycle, the crypto market is expected to continue to usher in a good upward trend.
Since the U.S. SEC approved Bitcoin spot ETFs early this year, the legitimacy of crypto assets as an emerging investment category has been greatly enhanced.This is undoubtedly an important moment for global investors – we are getting closer to the inflection point of the integration of traditional finance and crypto assets.
Since its launch, Bitcoin spot ETF has attracted the attention of all kinds of important institutional investors.US state government investment funds, major banks, leading hedge funds, well-known asset management companies, investment consulting companies, and other commercial companies have poured in.Currently, the Wisconsin State Government Fund in the United States is one of the largest holders of BlackRock’s Bitcoin spot ETF.
The massive entry of institutional investors has also played a good catalyst for the Bitcoin price itself (the increase was close to 70% in less than 2 months).And now, the market is looking forward to further boosting confidence by the approval and comprehensive trading of Ethereum spot ETFs.
As the second-ranked cryptocurrency in market value, Ethereum has the widest decentralized application ecosystem (dApps).A few weeks ago, the US SEC officially approved the 19b-4 form of 8 spot Ethereum ETFs including BlackRock, Fidelity, Grayscale, etc.This news not only triggered Ethereum price to rise by more than 10% within a few hours, but also opened the door for Ethereum to further move towards traditional financial markets.
Although the S-1 registration statement still needs to be effective before the formal start of transactions, the approval of 19b-4 actually consolidates Ethereum’s position as a digital commodity.This article will analyze the investment value, selection strategies and future prospects of the second largest cryptocurrency in the crypto market, Ethereum’s spot ETFs.
1. One year increase of 303%——ETHE
Grayscale Ethereum Trust Fund ETHE was once one of the most important tools for U.S. stock investors to invest in Ethereum.The fund was issued and managed by Grayscale Fund, a subsidiary of digital currency group Digital Currency Group, and its assets once exceeded US$10 billion.It was established in December 2017 and was traded in July 2019, using the same trust structure as GBTC.
In theory, ETHE price should fluctuate narrowly around Ethereum’s price, but in fact its secondary price performance is not entirely out of the market.Since its launch in 2019, it has maintained a positive premium to Ethereum for a long time, even exceeding 1,000%.But since February 2021, ETHE has entered a bleak discount mode and has continued to expand during the bear market.
The long-term discount is mainly related to the inability to redeem the product directly.In addition, restrictions on arbitrage opportunities, forced closing positions by large speculators, discounting opportunity costs, and impact of competitive products have also led to an expansion of discounts, so ETHE has been unable to track Ethereum prices itself well in the past few years.
But it is also because of the bear market that this discount has created an excellent opportunity to buy at the bottom – compared with Ethereum’s increase of nearly 100% in the past year, ETHE’s annual increase has reached 300%.
Given that many issuers are actively applying for Ethereum spot ETFs, Grayscale is also actively promoting the conversion of ETHE to spot ETFs, which is expected to smooth out the discount.In the visible future, ETHE is expected to become one of the largest Ethereum spot ETFs in the United States, similar to GBTC to Bitcoin.
2.Ethereum spot ETF expected to be officially approved
As mentioned earlier, the 19 b-4 forms of the 8 spot Ethereum ETFs have been approved by the SEC, as shown in the figure below:
ARK 21Shares Ethereum ETF: jointly applied by well-known fund ARK Ark Fund and digital asset management company 21Shares.It should be noted that ARK has actually successfully issued Ethereum Futures ETF – ARK21Shares Active Ethereum Futures ETF (code: ARKZ), which mainly allocates funds to Ethereum futures products.
Bitwise Ethereum ETF: Bitwise has taken the lead in updating the S-1 form of Ethereum spot ETF, and is the first to submit among all ETF issuers recently.It also said Pantera Capital is interested in buying the $100 million ETF product.Previously, as an investor in Bitwise, Pantera Capital has purchased $200 million of Bitwise’s Bitcoin spot ETF (code: BITB).
Fidelity Ethereum ETF: Financial services giant Fidelity Investment hopes to launch ETFs holding Ethereum cryptocurrencies, and this application document happened to be released the day after BlackRock submitted its own Ethereum ETF application.
Franklin Ethereum ETF: Franklin’s application was submitted in early 2024.
Grayscale Ethereum ETF: As mentioned earlier, Grayscale hopes to convert its Ethereum Trust ETHE into a spot ETF product.
Invesco Galaxy Ethereum ETF: This ETF jointly filed by Invesco and Galaxy Capital is designed to provide exposure to the spot price of Ethereum.
BlackRock iShares Ethereum Trust: BlackRock submits its application at the end of 2023.The ETF is designed to provide direct investment in Ethereum and is expected to increase market confidence.
VanEck Ethereum ETF: As a well-known American asset management company and ETF giant, VanEck is known for its pioneering role.The company is also actively applying for Ethereum ETF products.
It is worth noting that these applications reflect the significant interest of mainstream financial institutions in integrating Ethereum into traditional portfolios, and most of them are similar to Bitcoin spot ETFs, finding Coinbase as asset custodians, as shown in the figure below:
Why has Ethereum spot ETF passed and caused Ethereum to continue to surge?To be precise, it is not “completely passed”, we need to clarify the difference between the two files:
19b-4 documents are used to inform the SEC of changes in the rules that allow ETFs to trade on exchanges—such as introducing new products, modifying trading mechanisms or other related exchange policies.Once submitted, the SEC reviews the proposal and publicly seeks public comments before deciding whether to approve it.
But ETF listing also requires the ETF issuer to obtain S-1 documents approved by the SEC.The S-1 document is not the last step, but it is a very critical step under US SEC regulation.Only when the SEC approved the S-1 document to be effective will the fund manager continue to prepare for the official listing of the ETF, including the determination of the listing date and marketing.
19b-4 Passing means that there is a chance in this matter; S-1 Passing is considered a foregone conclusion.This process currently takes weeks to months, so Ethereum prices will not rise sharply in a short period of time.
However, now that multiple spot Ethereum ETFs are listed on the DTCC website, they are likely to repeat the script of Bitcoin spot ETFs.
3.Ethereum Spot ETFs Brief Investment Guide
Previously in an analysis article on Bitcoin spot ETFs, the RockFlow investment research team gave some strategies, focusing on three indicators: fees, liquidity and transaction costs.Investors who buy and hold should focus on fees, active traders should focus on liquidity in particular, while all parties involved should focus on how the issuer’s own transaction costs ultimately affect ETF performance.
As an ordinary investor, if you want to invest in Ethereum ETFs, your ideas are actually similar.Given that the first batch of Ethereum spot ETFs had the same underlying assets, the final returns would be almost no different.Therefore, the RockFlow investment research team believes that everyone can focus on two dimensions:
1) Cost and liquidity of Ethereum ETFs
Cost is obviously very important for ETFs, and prioritizing competitive low-rate ETFs will maximize your long-term returns; liquidity is crucial to the convenience of trading.The larger the assets managed, the more confident and stable the investor is, and therefore more suitable for long-term holding.
2) The background and reputation of ETF issuers
The first batch of Ethereum ETF issuers were all established companies, and they often provide higher reliability, and the performance of giants in the past issuance of ETFs is enough to prove this.
4.How do you view the future of Ethereum ETFs?
Bloomberg research shows that if the Ethereum ETF is successfully approved, future capital inflows will account for 10-20% of Bitcoin spot ETF inflows.Given that Bitcoin price rose to $70,000 (75%) two months later, ETH is expected to see a similar trend (pushing the asset past its all-time high of $4800).
The logic behind this number depends on several factors: compared with Bitcoin, institutional investors currently have less interest in Ethereum; the current trading volume of Ethereum Futures ETF is much smaller than that of Bitcoin Futures ETF (10-20%);The spot trading volume of Ethereum is less than Bitcoin (about 50%); Ethereum currently accounts for about 1/3 of Bitcoin’s market value.
That being said, Ethereum and Bitcoin themselves are still very different, including but not limited to:
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Ethereum does not have the same “structural selling pressure” as Bitcoin, because Ethereum validators do not incur operating expenses like Bitcoin miners (forcing them to sell a portion of mined Bitcoin);
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Currently, 38% of Ethereum supply is in on-chain staking and has a low willingness to sell;
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Ethereum is more reflexive than Bitcoin.This reflexivity can be expressed through price behavior leading on-chain activities, resulting in more Ethereum being destroyed, which can better drive the narrative of Ethereum, more on-chain activities and more Ethereum being destroyed;
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Ethereum is a more flexible “crypto bull market call option”, while Bitcoin is “digital gold”.Ethereum’s volatility is expected to continue to expand in the short term.
Overall, Ethereum is more likely to surpass Bloomberg’s forecast of 10-20% of Bitcoin net inflows.
From a broader perspective, the current crypto market is ushering in a round of innovation cycle. Coupled with the improvement of macros and the monetary cycle that is expected to be further released, and the upcoming US election cycle, the passage of spot ETF products has obviously eliminatedImportant compliance concerns in the market.RockFlow’s investment research team believes that the crypto market is expected to continue to usher in a good upward trend.
