This January marked the end of a decade-long wait with the launch of the Bitcoin Spot ETF. This regulated investment vehicle has broadened access to the largest crypto asset. Recent 13-F filings reveal a $16 billion inflow into these products. Naturally, the market's attention now shifts to the next frontier: Ethereum (ETH). With a market cap of $420 billion, Ethereum is a logical successor, and its ETF approval seems imminent. The unexpected approval of the spot Ethereum ETF by the SEC in May has solidified ETH’s status as a commodity, further enhancing its value proposition. Only six months later, the spot Ethereum ETF has launched.
Nine Ethereum ETFs, operated by traditional asset management firms such as BlackRock and Fidelity, as well as crypto-native companies like Bitwise and Grayscale, will track the spot price of Ether (ETH). By being listed on public exchanges like the Chicago Board Options Exchange (CBOE), New York Stock Exchange (NYSE), and NASDAQ, investors now have another way to access ETH through major brokerage platforms, complementing existing options such as self-custody wallets.
Ethereum (ETH) has a market cap of $420 billion, roughly one-third of Bitcoin's (BTC) $1.3 trillion market cap. On average, daily spot trading volume (across credible exchanges) is half of BTC’s, reflecting relative market activity and liquidity. In the futures market, BTC’s open interest is approximately 2.6 times higher than ETH across all exchanges, and about 9 times higher on the Chicago Mercantile Exchange (CME). Prior to their respective ETF launches, Grayscale’s Bitcoin Trust (GBTC) had assets under management (AUM) about 2.8 times that of its Ethereum Trust (ETHE). Overall, these metrics suggest that ETH ETF inflows might align proportionately with the established size differences between the two assets.
One important consideration is that the current ETF structure does not include staking, posing an opportunity cost for potential investors who forgo additional staking yields. This limitation may affect short-term demand for Ether ETFs and could spark discussions about developing more comprehensive ETH investment products that include staking yields. However, incorporating staking also involves considerations regarding the staking ratio and rewards for ETH, overall network security, and regulatory transparency surrounding the Proof of Stake (PoS) consensus mechanism.
As Grayscale’s Ethereum Trust (ETHE) transitions from a trust structure to an Exchange Traded Fund (ETF) upon its launch, it is crucial to consider the potential outflows this product might generate.
The dynamics of Grayscale’s Bitcoin Trust (GBTC) can serve as a precedent. Before the launch of the spot Bitcoin ETF, GBTC held approximately 620,000 BTC (about 3.1% of BTC’s supply) with a total AUM of about $30 billion. The conversion of GBTC from a trust to an ETF provided an exit opportunity for investors who previously bought GBTC at a discount, or a chance to switch to an ETF with lower management fees. Consequently, GBTC’s Bitcoin holdings decreased by about 55% to 270,000 BTC, exerting downward pressure on BTC’s price.
On the other hand, Grayscale’s Ethereum Trust (ETHE) held about $10 billion in AUM, including 3 million ETH (accounting for 2.5% of ETH’s supply) prior to its launch. While ETHE may experience similar outflows, a series of events preceding the launch of the ETH ETF and Grayscale’s Ethereum Mini Trust (ETH) may mitigate the extent of these outflows.
Following the ETF approval in May, ETHE’s net asset value discount rapidly narrowed, providing investors ample time to exit at close to par value. Additionally, the Mini Trust charges a 0.15% fee, offering fee-sensitive investors an option to transition to this low-cost product. 10% of ETHE has already been transferred to the new Mini Trust product as seed funding, reducing AUM by $1 billion or 300,000 ETH holdings.
Despite recent inflationary trends, partly driven by the growth of Layer 2 network activity and Dencun’s fee reductions, ETH’s supply has remained largely deflationary (-0.24%) since the Merge. The interaction between ETH’s constrained supply and potential ETF inflows could create a flywheel effect for network activity, benefiting ETH’s overall economic health and on-chain metrics.
While initial attention may focus on the immediate performance of the Ethereum ETFs, their true impact will unfold over the coming months. This period will provide deeper insights into the demand for ETH ETFs relative to Bitcoin, the characteristics of these investor groups, and the broader impact on the Ethereum ecosystem, including network adoption, scaling infrastructure, and applications. Nonetheless, this launch marks a pivotal milestone in the expansion and maturation of the crypto asset market. By enhancing accessibility to ETH and its ecosystem, the launch of ETH ETFs represents not only a new investment tool but also a significant catalyst for Ethereum’s expanding role in the global financial landscape.
For more analysis, please follow Aibit's media account for real-time updates! This article is for reference only, does not represent any position, and is not intended as investment advice. Investment is risky, caution should be exercised.
Facebook: https://www.facebook.com/aibitcom
X: https://twitter.com/aibitcom
Telegram (CN): https://t.me/aibitcom_cn
Telegram (EN): https://t.me/aibitcom
Telegram (Announcements): https://t.me/aibitcom_announcements
Discord: https://discord.com/invite/aibitcom
Medium: https://medium.com/@aibitcom
Youtube: https://www.youtube.com/@aibitcom