JPMorgan warns of 'negative' initial market reaction to spot Ethereum ETFs

Those expecting spot Ethereum ETH -0.58% ETFs to see the kind of cash pouring into them the way they did for their bitcoin counterparts may be disappointed, according to analysts from JPMorgan. 

"The initial market reaction to the launch of spot ethereum ETFs is likely to be negative," wrote the team of analysts led by Nikolaos Panigirtzoglou, in its 25-page "Flows Liquidity" report issued Thursday, of which ETH took up less than one page. 

Not keeping up with spot bitcoin ETFs

Spot ether ETFs won't see the sort of rush of money spot bitcoin ETFs did when they launched. Products in the latter category by BlackRock and Fidelity broke records by each accruing $10 billion in assets under management in a matter of weeks. 

"We believe the demand for spot ethereum ETFs would be a fraction of that seen for spot bitcoin," the JPMorgan analysts wrote, listing several reasons why they see spot ether ETFs not being in league with those of bitcoin. 

First, the analysts said, bitcoin had a "first mover advantage" and thus sopped up much of the demand for crypto assets in response to spot ETF approvals.

Another reason they cited was that bitcoin's halving event , which occurred a month ago, " acted as an additional demand catalyst for spot bitcoin ETFs." While Ethereum's proof-of-stake (PoS) consensus mechanism doesn't have a similar event, it should be noted that bitcoin's next halving won't occur until 2028. 

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On the flip side, since the ETFs removed staking from their filings, this makes them "less attractive compared to platforms that offer staking yield," the JPMorgan analysts argue.

The researchers also see bitcoin's role as "competing with gold in portfolio allocations," something that ether, positioned as a token for applications, comes up short. Lower liquidity in ether, the second-largest cryptocurrency based on market capitalization, also makes it less desirable to hedge and quant funds, they maintain. 

JPMorgan cites that smaller market cap as a reason they see "a modest" $1 billion to $3 billion in net inflows for the remainder of 2024, assuming they go live before New Year's Eve; they expect triple those amounts should staking somehow be added to the ETFs at some point. For that to happen, however, Congress would have to legislate that ether is a commodity, the analysts said. 

Grayscale Ethereum Trust's outlook

For comparison, total assets under management for spot bitcoin ETFs was $59 billion as of May 30, according to data from The Block . The day spot bitcoin ETFs began trading in January, Grayscale Bitcoin BTC +1.44% Trust's AUM was $28.7 billion. Grayscale Ethereum Trust's AUM was $11 billion as of Thursday. 

Like Grayscale's bitcoin product, its ether ETF will likely see money flowing out of it once trading begins on spot ether ETFs, warn the analysts. "We expect around $1bn to exit the Grayscale Ethereum Trust as speculative investors, who previously bought the ETHE in anticipation of it being converted to ETF, are likely to take profit, thus exerting downward pressure on ethereum prices soon after the launch of spot ethereum ETFs," they wrote.