Why Ethereum ETFs’ billion dollar hopes could end in disappointment

Crypto industry analysts hold diverse views on the potential performance of spot Ethereum exchange-traded funds (ETFs) as their anticipated launch draws closer. While some predict strong inflows, others caution that demand may fall short of Bitcoin ETF levels.

Also Read: Gary Gensler optimistic about spot Ethereum ETF approval progress

The performance of the new investment vehicles will depend on post-launch price correction and Ethereum’s unique challenges.

Ethereum ETF bets less bullish without ‘carry trades’

Matt Hougan, the investment brain at Bitwise, is leading the optimism charge. He’s forecasting $15 billion in Ethereum ETF inflows over the next year and a half. He has based this prediction on Ethereum’s market cap compared to Bitcoin and some number-crunching from international ETF markets.

He starts with a $100 billion estimate for Bitcoin ETF assets by the end of 2025.

Ethereum’s market cap is about 26% of Bitcoin’s, so he figures Ethereum ETFs should aim for around $35 billion. After considering international market data and the lack of a profitable “carry trade” for Ethereum, Hougan came to that $15 billion prediction.

Also Read: Ethereum ETF launch preceded by high network activity, low gas fees, and price weakness

Carry trades is a profitability shortcut that includes borrowing at lower interest before investing in a higher yield investment.

For instance, a Bitcoin ETF investor could buy a spot and sell a Bitcoin futures contract and profit from the difference. But, likely due to differences in the ETH futures market structure, liquidity between Bitcoin and Ethereum, and lack of staking, the same would probably not apply.

Less hype due to Ethereum ETFs second entry

JPMorgan’s analysts predicted a modest $1-3 billion in inflows for the ETH ETFs last month. Their reasoning? Ethereum doesn’t have the first-mover advantage that Bitcoin enjoyed on top of its halving event. The reason still holds with Ethereum’s proof-of-stake (PoS) mechanism that doesn’t even have the staking rewards.

However, ETH staked has continued to show a positive trajectory since January 2024, coinciding with the launch of Bitcoin ETFs.

Ethereum Total Value Staked | Source:CryptoQuant

Bernstein previously suggested that without staking, owning Ethereum directly might make more sense. Additionally, the fund’s expense ratio would be an added burden for the investors. Part reason why Van Eck wants to slash its fees for the initial period.

Also Read: VanEck to offer zero-fee onboarding once the Ethereum ETF launches

Adding to the bearish sentiment, the founder of crypto investment firm Mechanism Capital, Andrew Kang,  expects a 30% price correction for Ethereum following the ETF launch. Kang argues that the ETF approval is already “more than priced in” and Ethereum needs to step up its game to see real growth.

Competition from Bitcoin ETFs looms large

Bloomberg’s senior analyst Eric Balchunas noted that Ethereum ETFs might only pull in about 10% of what Bitcoin ETFs have managed . That’s quite a gap!

Christopher Perkins, president of VC firm CoinFund, told Fortune that Ethereum’s main challenge remains branding. In October 2023, multiple ETH Futures launches also saw a tepid response , and history might repeat with the spot debut.

Additionally, Bitcoin might also overshadow Ethereum and its ETFs in the near term due to anticipation of BTC’s post-halving strength. If this part of the bull cycle fails to show an altcoin season onset, led by Ethereum, liquidity could potentially stay with BTC in July.

 

Ethereum ETF launch anticipation has everything from bullish predictions to cautious outlooks. While they can fall short in terms of Bitcoin, their absolute market prediction might surprise the market.

Also Read: Spot Ethereum ETFs to launch July 2nd, says Bloomberg analyst

Cryptopolitan reporting by Shraddha Sharma