The market is bleak, but there is no shortage of news related to Ethereum.
There has been a flurry of positive news surrounding the Ethereum spot ETF. First, Consenys announced that the SEC has stopped its investigation into Ethereum securities issues. Later, there were market reports that the Ethereum spot ETF is expected to be approved and launched on July 2nd. Standard Chartered Bank also joined in the excitement, with recent rumors that it will build a trading platform for Bitcoin and Ethereum.
Despite the abundance of news, the market has not shown improvement, with Bitcoin briefly falling below the $60,000 mark and Ethereum dropping back below $3,400. However, compared to Ethereum's drop to $2,900 at the end of May due to lack of narrative, and the recent decline in mainstream coins, it is evident that the expectation of the spot ETF has provided strong price support for ETH.
With the imminent launch of the Ethereum spot ETF, the market is now focused on its performance after listing. There are differing opinions on whether it will quickly decline or be buoyed by institutional capital.
The trend of Ethereum this year can be described as full of twists and turns, mainly revolving around the London upgrade and the speculation surrounding the spot ETF.
On March 13th, the London upgrade was completed, and ETH reached a high of $3,981. Subsequently, the price fluctuated with the news of the ETF, dropping sharply when the ETF approval seemed unlikely, then rising overnight to $3,600 after a sharp reversal, and then continuing to fluctuate at high levels in line with the overall market.
After the "618" sell-off, the crypto market entered a period of calm again. Due to the lack of liquidity, prices are easily influenced by emotions. In recent days, with the outflow of ETF funds and panic selling pressure, mainstream value coins continued to decline. However, compared to Bitcoin's 7.72% decline from a peak of $65,000, Ethereum showed stronger resilience with a 3.18% decline, demonstrating relatively strong support. Furthermore, in the market itself, there have been several positive fundamental developments for Ethereum.
Firstly, the non-security nature of Ethereum has been clarified. Consenys announced last week on social media that the U.S. Securities and Exchange Commission (SEC) has decided to end its 14-month investigation into Ethereum. Although litigation regarding ETH is ongoing, this is undoubtedly a milestone in crypto regulation.
Abandoning the investigation into Ethereum implies that the SEC will not later accuse ETH sales of being securities transactions. This aligns with the potential implications of the approval of the Ethereum ETF 19b-4, which potentially removes Ethereum's security attributes. However, prior to this news, there were still rumors that the SEC would make an issue of this, as the SEC chairman has repeatedly avoided discussing Ethereum's attributes, even after the ETF approval.
Secondly, if Ethereum is no longer considered a security, then the Proof of Stake (POS) mechanism and staking mining are also likely not considered securities activities, which could be added by the Ethereum spot ETF applicants. Previously, due to the SEC's aversion to staking, all applicants deleted "staking" from the S-1 form, raising doubts in the market about the competitiveness of the ETF. For investors, without staking income and with additional management fees, the return on investment is inevitably lower than directly purchasing ETH. Of course, this speculation overlooks the consideration that under current U.S. regulations, large institutions such as banks are not allowed to directly purchase virtual currencies.
The second major positive is the approaching ETF launch date. Although the SEC chairman mentioned in an interview that the Ethereum spot ETF application is expected to be approved this summer, the lack of a specific time has caused anxiety in the market. However, a recent estimate of the date has finally emerged. On June 21st, Bloomberg ETF analyst Eric Balchunas announced on social media that the issuer of the Ethereum spot ETF is expected to submit a revised S-1 form later in the afternoon. Subsequently, the SEC will notify the issuer of the final modifications and effectiveness, and the spot ETF is expected to be launched on July 2nd. Considering his previous accurate predictions of the launch of the Bitcoin ETF and the reversal of the Ethereum ETF, this timing has a certain level of credibility.
In addition, Standard Chartered Bank also announced that it is building a trading platform for Bitcoin and Ethereum. If this news is true, it will further expand the trading channels and continue to lower the threshold for investors. However, given the current situation, traditional institutions still face significant challenges in terms of regulatory feasibility and infrastructure when engaging in trading activities.
Despite the frequent positive news, the actual price performance has been less than satisfactory, leading to diverse opinions in the market regarding the upcoming ETF.
In terms of market size, Bitcoin ETFs have provided an excellent example. According to Farside Investors' data, since its launch in January, the net flow of BTC-related products has reached $14 billion, with assets under management (AUM) exceeding $50 billion. However, there are concerns about the scale of the Ethereum ETF.
The vast majority of analysts believe that Ethereum (ETH) can only account for 15-20% of Bitcoin's share. Analysts at JPMorgan Chase believe that by the second half of 2024, the Ethereum ETF will only attract net inflows of about $1 billion to $3 billion. Andrew Kang, co-founder of Mechanism Capital, holds a similar view and has written a detailed article analyzing the impact of the Ethereum spot ETF on the market.
In his view, excluding arbitrage trading and spot rotation, the true net inflow of Bitcoin ETFs is $5 billion. According to Eric Balchunas' estimate, the flow of ETH may be 10% of BTC, which means that within the first six months after the ETF is approved, the actual net purchase flow of ETH may be around $500 million, with an optimistic estimate of around $1.5 billion.
He emphasized that for ETFs targeting traditional institutions such as pension funds, endowment funds, and sovereign wealth funds, Ethereum is not popular. Firstly, Ethereum's institutional market position is smaller than Bitcoin's, with Ethereum holdings in the CME accounting for only 0.3% of the supply ratio, compared to Bitcoin's 0.6%, but before the ETF was launched, ETH had already risen fourfold from its low point, while BTC had only risen 2.75 times, reflecting the limited upside potential of ETH. Secondly, from a quantitative data perspective, Ethereum's performance is also poor, with a 30-day annualized revenue of $1.5 billion and a price-earnings ratio of 300, which becomes negative when inflation is factored in.
A more realistic reason is that due to the sudden approval, issuers did not spend a lot of time persuading holders to convert ETH into ETF form, and choosing the ETF also incurs the opportunity cost of ETH staking income. Andrew predicts that the trading price of ETH before the ETF is launched will be between $3,000 and $3,800. After the ETF is launched, it is expected to be between $2,400 and $3,000. If BTC rises to $100,000 in the fourth quarter of 2025, it may drag down the rise of Ethereum and altcoins, and the ETH/BTC ratio will be lower, ranging from 0.035 to 0.06 in the next year.
There are bearish voices, and naturally there are also bullish arguments.
In response to Andrew Kang's analysis, Degentrading countered, suggesting that Ethereum could reach $6,000 by September. He emphasized that in discussions with traditional finance professionals, the market's enthusiasm for ETH and even SOL is higher than for BTC. Additionally, despite Ethereum's market size being about one-third of Bitcoin's, its liquidity is only about 10% of BTC's, meaning that an inflow of $30-40 billion will have a substantial impact on ETH, and the inventory of ETH trusts at Grayscale also creates lower selling pressure for Ethereum compared to Bitcoin. A recent report from Deribit Insights also provides a bullish signal, with the premium for buying options for ETH at $4,000 in September exceeding $12 million, indicating a rise in medium-term market optimism.
Regardless of external controversies, ETF issuers have already sounded the drum for a fee war. Last week, several issuers of Ethereum spot ETFs subsequently submitted revised S-1 forms. In terms of fees, to seize the market, the fees for Ethereum are generally lower than those for Bitcoin. VanEck disclosed that its fees are as low as 0.20%, which is very close to Franklin's 0.19%. In this context, other institutions such as BlackRock will be forced to keep fees below 30 basis points.
Before this, Cathie Wood's Ark Investment Management withdrew from the competition for the Ethereum ETF due to lack of profitability. She mentioned that the Bitcoin spot ETF did not generate any revenue for the company because the fees charged to investors were too low, at a rate of only 0.21%. Although this is not much different from the fees charged by other Bitcoin ETF issuers, it is still significantly lower than the fees charged by non-cryptocurrency ETFs.
In this context, allowing staking may increase the competitiveness of the Ethereum ETF. Although no ETF issuer has yet modified their stance to support staking, they are likely to do so in the future in response to profit pressure. However, it is worth noting that if staking is allowed, for security and efficiency reasons, the issuer may build its own nodes to become validators, which could dilute the market share of other Ethereum ecosystem projects.
Returning to Ethereum itself, as the largest application platform in the crypto space, the price of ETH actually represents the development of the entire crypto ecosystem. However, in recent years, as applications and ecosystem development have reached a bottleneck, the Ethereum hype cycle has shifted to the topic of upgrades. Apart from the vitality brought by staking, Ethereum also serves as a symbol of mainstream coins.
Compared to Bitcoin's value consensus, Ethereum's positioning in the eyes of institutions is quite ambiguous. On one hand, it is a blue-chip stock in the tech sector and an absolute leader in the blockchain world. On the other hand, it is also a more easily replaceable investment product, with less resilience in value compared to Bitcoin, sometimes not rising with the market and not experiencing as much growth as some U.S. stocks. Especially in the current context of limited application innovation, Ethereum's ecosystem growth has slowed down, and the MEME cycle has also rotated accordingly, with occasional rumors of Solana surpassing Ethereum.
Although there is much controversy over whether Ethereum is a better investment commodity than Bitcoin in terms of investment value, no one will deny Ethereum's status and network effects. This is also why the market is highly focused on the Ethereum ETF, as funds from Ethereum could potentially flow into the altcoin market through staking, but funds from Bitcoin would not.
Looking at various price perspectives, it is highly probable that Ethereum will experience high volatility after the ETF is launched. Focusing on the actual events, the short-term outlook is bearish, while the long-term outlook is bullish, which aligns with the market's price expectations. Before the launch, speculation on various coins in the ecosystem has already begun, perhaps offering an alternative way to profit.
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