Bitcoin
Spot Ether ETFs Could Be Coming Soon. What Are Traders Watching?
July 9 (Reuters) – The ether may be nearing its moment of glory.
World number 2 cryptocurrency has remained in the wings this year as big brother bitcoin has hit all-time highs thanks to new U.S. exchange-traded funds designed to track its price. But as complementary ETFs to ether is expected to hit the market soonsome market participants predict that a price rally beyond the November 2021 all-time high of $4,867.60 may be on the way.
“Consider the fact that ethereum has roughly half the level of spot liquidity,” said Thomas Perfumo, head of strategy at cryptocurrency exchange Kraken, referring to ether trading on exchanges versus bitcoin. “Half the amount of liquidity means you need less absolute dollar amount coming into the market to have the same price impact on ethereum.”
Crypto graveyards are filled with investors who thought they could safely predict these risky and volatile markets.
The likely token dump from defunct Japanese exchange Mt. Gox has thrown a curveball into the market in recent days, hitting bitcoin and ether. Other factors, such as the timing of the US Federal Reserve’s interest rate cuts and the upcoming presidential election, could also affect cryptocurrencies.
“Market participants should be wary of a return of volatility in both traditional and crypto markets,” Jag Kooner, head of derivatives at crypto exchange Bitfinex, said in a research note. “Regulatory developments and macroeconomic policies will play a crucial role in shaping market dynamics.”
STAKED AND BLOCKED
Bitcoin reached new heights in March to as high as $73,803.25, two months after the first spot bitcoin ETFs began trading, from $45,947 before the launch. In contrast, ether remained well off its all-time high, trading only as high as $4,093.7 in March.
That could change when ether ETFs hit the market in the coming weeks, experts say, noting that ether’s supply is limited and that inflows into ETFs could have a bigger effect on the token’s price compared to bitcoin.
The new ether ETFs are not expected to attract the same investor enthusiasm as spot bitcoin ETFs, which attracted nearly $38 billion in assets through the end of June, according to Morningstar Direct.
Research from crypto asset manager Grayscale Investments, which is about to convert its existing ether fund into an ETF, estimated that spot ether ETFs could account for 25% to 30% of demand for bitcoin funds.
But reducing the market cap — given that ether’s market cap is about a third of bitcoin’s — could have a comparable impact on the price per dollar of inflows into ether ETFs, said Zach Pandl, managing director of research at crypto asset manager Grayscale Investments.
“I think it’s similar to what we were seeing for bitcoin earlier this year, where we think there’s going to be a substantial amount of new demand for the product and that’s going to be interacting with a supply landscape that’s tighter than I think is commonly understood,” he said.
Unlike bitcoin, ether can be staked, or locked up for a certain period of time, in exchange for yield. Just under 30% of ether’s supply is staked, Pandl estimated, while another about 10% is locked in smart contracts. That reduces the supply of ether available for purchase for the new ETFs, which could drive up the price, he said.
“The reason bitcoin ETFs have impacted the price is because there has been more demand for these ETFs than there has been new supply of bitcoin,” said Matt Hougan, chief investment officer at Bitwise. “In [ether]the supply situation is even worse.”
Predictions about the impact the ether ETF could have on the token’s price vary widely, with global bank Standard Chartered estimating that ether can reach US$ 8,000 by the end of the year. VanEck, which is set to launch a spot ether ETF, in May raised its price target for ether to $22,000 by 2030.
However, the impact of the new ETFs may already be priced into ether, some market watchers warn. While it has remained far from its all-time high, ether is still up more than 29% so far this year.
“For bitcoin and ethereum, they are more valued than they were at the launch of the bitcoin products earlier this year. That could argue for a slightly smaller effect,” Grayscale’s Pandl said.
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Reporting by Hannah Lang in New York; Editing by Pravin Char
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