By Frances Yue
Ether ETFs could arrive as soon as next week, according to Bloomberg News
Ether ETFs, which could arrive as soon as next week, are unlikely to see as much demand as their bitcoin counterparts. However, they are still likely to drive ether's price up by 90%.
Crypto investors have been anxiously waiting the potential launch of ether (ETHUSD) ETFs, after the U.S. Securities and Exchange Commission in May approved filings from the New York Stock Exchange, Nasdaq and a subsidiary exchange of Cboe, which requested rule changes that would allow them to list spot ether ETFs.
The SEC still must approve registration statements from the potential issuers, before the products can be offered to the public.
But last month, SEC Chair Gary Gensler reportedly told U.S. lawmakers that Ether ETFs could arrive during the summer, while asset managers are optimistic that the products may be launched as soon as in mid-July, according to Bloomberg.
Any timing of an approved ether ETFs isn't likely to have much impact on ether price, as investors have already priced in the approval of such products, according to Thomas Perfumo, head of strategy at Kraken digital asset exchange.
Grayscale Ethereum Trust ETHE, a closed-end fund, is trading at a 1% discount from its net asset value, or the ether it holds as of Tuesday, according to data from YCharts. That has narrowed from an over 20% discount in May, showing increasing confidence among investors that the fund will be converted to an ETF.
However, if ether ETFs were approved, ether price will mostly be impacted by the capital flows through the ETFs, noted Perfumo.
Ether has declined 12.8% over the past month, mostly dragged down by bitcoin, though the second largest crypto by market cap is still up 35.5% year-to-date, according to Dow Jones Market Data.
The consensus is that ether ETFs will see much less inflow than their bitcoin counterparts. Eric Balchunas, senior ETF analyst at Bloomberg, said in May that he expected ether ETFs to get about 10% to 15% of the inflows that bitcoin ETFs saw. As of Tuesday, U.S. spot bitcoin ETFs have seen net cumulative inflows of more than $15.1 billion since they started trading on Jan. 11.
Taking in 12.5% of those flows would equated to $1.9 billion, which is roughly 15% of the current $12.5 billion asset under management by global ether exchange traded products, or ETPs, according to data from CoinShares.
Crypto represented only a small part of the U.S. ETP universe as of last year. Ether ETPs trade on stock exchanges that track the price of ether, while ETFs are a subset of ETPs. As ether ETPs buy and sell ether, their flows could impact the crypto's price.
"Despite the fact that we expect significantly less net inflows from ether ETFs than bitcoin ETFs, we think the price impact will be very significant because ether has a higher sensitivity to ETP flows," André Dragosch, head of research at crypto asset manager ETC Group, said in a phone interview.
Ether's price has seen an average sensitivity of about 6.15 to global ETP flows, compared with about 1 for bitcoin, noted Dragosch. It means that an increase of 1% per week in the assets under management by global ETH ETPs is associated with an average gain of 6.15% of ether per week, according to Dragosch.
A 15% increase in assets under management by global ether ETF might imply a 92% gain for ether, Dragosch noted.
To be sure, the sensitivity of ether's performance to the ETP flows can vary significantly over time, while correlation does not imply causation. Other factors, such as macroeconomic conditions and news events, also plays important roles on a coin's price.
Perfumo said that while ether ETFs may not see as much demand as in bitcoin ETFs, they could drive up ether price significantly.
The liquidity of ether is about half of that of bitcoin, Perfumo said. "What that means is it takes less inflows of price impact for ether versus bitcoin," said Perfumo.
-Frances Yue
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
07-22-24 1514ET
Copyright (c) 2024 Dow Jones & Company, Inc.
