Can ETF Approvals Drive a 90% $ETH Rally?

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Cryptocurrency investors have eagerly awaited the launch of Ether ETFs since May 2024, when the U.S. Securities and Exchange Commission (SEC) approved applications from potential issuers. However, these spot ETFs did not start trading until July 22, 2024, when the regulator finally gave the go-ahead.

While these ETFs are not expected to attract as much demand as their Bitcoin counterparts, many believe they will significantly drive up the price of Ether. Some even suggest that this price increase could reach as high as 90%. But how feasible is this lofty projection?

Current Market Outlook for ETH

Over the past two months, Ether’s market value has declined by 11.40%, dropping from $3,943.55 on May 23 to $3,493.97 on July 23. This decline was primarily due to tough market conditions, but the second-largest crypto by market cap, at $410 billion, is still up 35.5% year-to-date. Currently, the price of ETH stands at $3,337, with a trading volume of $120 million over the last 24 hours.

All eyes are on the performance of ⁠ETH ETFs. With the token’s implied volatility above 100%, the market is expecting fireworks. (Implied volatility refers to the market’s forecast of Ether’s potential price movement over a specified period derived from the prices of options on the cryptocurrency).

So far Ethereum ETFs did not disappoint nor did they impress, generating $1.08 billion in trading volume on their market debut. The $106.6 million net inflows recorded on the same day was however overshadowed by significant outflows from Grayscale’s converted Ethereum Trust.

Spot Bitcoin ETFs as a Precedent

Spot Bitcoin ETFs provide a benchmark for Ethereum ETF performance. According to Coindesk, these financial products have fueled the demand for cryptocurrencies and have already attracted about $30 billion in assets since their approval. Notably, Bitcoin value rose 66% from around $44,500 to a peak of $73,800 in the two months following SEC’s approval.

As of July 22, U.S. spot Bitcoin ETFs have seen net cumulative inflows of more than $15.1 billion since they started trading on January 11. If Ether ETFs capture 12.5% of those flows, it would equate to $1.9 billion, and that 15% of the current $12.5 billion in total assets under management for the similar financial products globally.

However, the performance of Ethereum ETFs on their debut represents only about 23% of the volume observed during the launch of spot Bitcoin ETFs, which saw $655.2 million in inflows on their first day.

Experts Opinion: Will Ethereum ETFs Approval Impact Ether Price?

Many experts believe that Ether ETFs will attract less investment compared to Bitcoin ETFs. Eric Balchunas, a senior ETF analyst at Bloomberg, predicted in May 2024, that Ether ETFs would record only 10% to 15% of the inflows that Bitcoin ETFs saw in their initial months. His counterpart, James Seyffart, was a little more generous with his estimates; he projected 20% to 25%. The optimistic predictions of the impact of this capital inflow into the ETFs, however, put ETH’s price almost doubling its current price.

According to Matt Hougan, Bitwise’s Chief Investment Officer, Ether ETFs may attract up to $15 billion in new assets over 18 months and this could potentially drive Ether’s price to a record above $5,000. The prediction from asset management firm VanEck, though long-term, see spot Ether ETFs driving Ether to $22,000 by 2030.

Crypto analyst Van de Poppe and Wes Levitt, Co-Chief Investment Officer of Transform Holdings, both anticipate a new all-time high for Ether following the listing of ETFs, with Levitt specifically expecting a price of around $6,000.

Singapore-based crypto investment firm QPC Capital suggested that if an Ethereum ETF follows the path of the Bitcoin ETF after approval, the price of Ether could potentially reach $6,000, representing a 60% increase.

On the contrary, some analysts are less optimistic about the impact of Ether ETFs. Patrick Scott expects Ether to move similarly to spot Bitcoin ETFs but does not foresee a doubling of Ether’s price.

Meanwhile, Andrew Kang, founder and partner at Mechanism Capital, reportedly warned that the launch of Ether ETFs could lead to a 30% drop in Ether’s price, possibly falling to as low as $2,400. Kang has also expressed concerns about the future of Ethereum as a cash flow asset and the potential deterrent of investors from converting spot Ether to ETFs if staking is not included.

Factors That Could Influence ETH ETFs’ Performance

Most of the positive predictions for Ethereum’s price post-ETF approval is based on the assumption that the capital flows through these ETFs will boost the crypto’s market liquidity, and thus potentially driving its value up. The stakeholders are speculating the ETH ETFs will attract billions of dollars of inflows from institutional investors who prefer the traditional financial infrastructure of ETFs over holding cryptocurrency directly.

Lennix Lai, global chief commercial officer at OKX, expressed this view clearly in a recent statement to DL News: “The launch of ETH ETFs means more capital inflow to the ETH ecosystem, especially from institutional investors.”

Lai also pointed out that the approval and launch of ETH ETFs indicate that the SEC doesn’t classify ETH as a security, which is a significant win for the cryptocurrency and its ETFs. This stance by the SEC clears up any remaining doubts over its status and allows previously cautious investors and businesses to start exploring its market.

However, the overall crypto market conditions will determine how these influx of investors would react. The market is not in a bullish mode right now, and investors are treading carefully. If this slump continues, it’s unlikely to expect a drastic price increase for ETH and consistent positive performance for its ETFs.

Furthermore, competition from other cryptocurrencies and associated investment products is a factor that cannot be ignored. We can say that spot Bitcoin ETFs enjoyed the first-mover advantage, but the market is now getting crowded – there are already moves to launch Solana-based ETFs and rumours of XRP ETFs too. ETH ETFs will have to battle with these investment products to claim dominance.

In conclusion, the launch of Ethereum ETFs marks a significant milestone for the cryptocurrency market. While opinions vary on the exact impact, most analysts agree that these ETFs will likely drive increased institutional investment and potentially push Ether to new price heights. However, investors should remain cautious and consider the volatile nature of the crypto market when making investment decisions.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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