Because the highly anticipated launch date of spot Ethereum ETFs approaches, Matt Hougan, Chief Investment Officer of crypto asset manager Bitwise, has stressed the potential for these ETF inflows to drive the Ethereum price to record highs.
In a recent client note, Hougan highlighted the numerous impact that ETF flows could have on the Ethereum price, surpassing even the consequences witnessed within the spot Bitcoin ETF market within the US.
Ethereum ETFs Poised To Surpass Bitcoin’s Impact?
Hougan confidently predicts that introducing spot Ethereum ETFs will result in a surge in ETH’s value, possibly reaching all-time highs above $5,000. Nonetheless, he cautions that the primary few weeks after the ETF launch could possibly be volatile, as funds could flow out of the prevailing $11 billion Grayscale Ethereum Trust (ETHE) after it’s converted to an ETF.
This could possibly be much like the case of the Grayscale Bitcoin Trust (GBTC), which saw significant outflows of over $17 billion after the Bitcoin ETF market was approved in January, with the primary inflows recorded 5 months afterward May 3.
Still, Hougan expects the market to stabilize in the long run, pushing Ethereum to record prices by the tip of the yr after the initial outflows subside, drawing a comparison with Bitcoin in key metrics to grasp this thesis.
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For instance, Bitcoin ETFs have purchased greater than twice the quantity of Bitcoin in comparison with what miners have produced over the identical period, contributing to a 25% increase in Bitcoin’s price because the ETF launch and a 110% increase because the market began pricing within the launch in October 2023.
BTC’s price performance since ETF approval in January. Source: Matt Hougan
That said, Hougan believes the impact on Ethereum could possibly be much more significant, and identifies three structural the reason why Ethereum’s ETF inflows could have a greater impact than Bitcoin’s.
Lower Inflation, Staking Advantage, And Scarcity
The primary reason Bitwise’s CIO highlights is Ethereum’s lower short-term inflation rate. While Bitcoin’s inflation rate was 1.7% when Bitcoin ETFs launched, Ethereum’s inflation rate over the past yr has been 0%.
The second reason lies within the difference between Bitcoin miners and Ethereum stakers. As a consequence of the expenses related to mining, Bitcoin miners generally sell much of the Bitcoin they acquire to cover operational costs.
In contrast, Ethereum relies on a proof-of-stake (PoS) system, where users stake ETH as collateral to process transactions accurately. ETH stakers, not burdened with high direct costs, are usually not compelled to sell the ETH they earn. Consequently, Hougan suggests that Ethereum’s every day forced selling pressure is lower than that of Bitcoin.
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The third reason stems from the incontrovertible fact that a considerable portion of ETH is staked and, subsequently, unavailable on the market. Currently, 28% of all ETH is staked, while 13% is locked in smart contracts, effectively removing it from the market.
This ends in roughly 40% of all ETH being unavailable for immediate sale, creating a substantial scarcity and ultimately favoring a possible increase in price for the second largest cryptocurrency in the marketplace, depending on the outflows and inflows recorded. Hougan concluded:
As I discussed above, I expect the brand new Ethereum ETPs to be a hit, gathering $15 billion in recent assets over their first 18 months in the marketplace… If the ETPs are as successful as I expect—and given the dynamics above—it’s hard to assume ETH not difficult its old record.
The 1-D chart shows ETH’s price trending upwards. Source: ETHUSD on TradingView.com
ETH was trading at $3,460, up 1.5% previously 24 hours and nearly 12% previously seven days.
Featured image from DALL-E, chart from TradingView.com