Why Ethereum ETF demand will disappoint crypto investors

Spot Ethereum exchange-traded funds will likely launch in the US on Tuesday — potentially opening the floodgates to a new round of crypto ETF craze.

Not everyone, however, believes Ethereum ETFs will prove to be as popular as the Bitcoin ETFs that were launched in January.

Crypto market maker Wintermute wrote Monday that it expects Ethereum ETFs to garner somewhere between $3.2 billion and $4 billion in assets within their first year.

With the firm expecting Bitcoin ETFs to amass roughly $32 billion before the end of the year, that means Ethereum ETFs would get only about 10% to 12.5% of the amount of assets that Bitcoin ETFs are projected to receive.

In that scenario, the price of Ether would potentially rise anywhere from 18% to 24%, Wintermute said — bringing the second-largest cryptocurrency to $4,200. A new 2024 high, but still below Ether’s 2021 all-time high of $4,800.

“This conservative estimate is influenced by the absence of a staking mechanism, which could diminish Ethereum’s attractiveness as an ETF investment vehicle,” Wintermute said in the report.

Staking is a process by which Ether investors can lock their holdings in the network and secure a 3% yield, paid out in Ether.

In their current form, the Ethereum ETFs won’t allow investors to gain exposure to that yield, which may deter them from seeking the investment vehicles.

Not only that, but ETF holders must also pay management fees — which range from 0.15% to 2.5%.

“Even paying 0.2% without the staking element seems like a nonstarter to me,” Adam Morgan McCarthy, an analyst at crypto data firm Kaiko Research, told DL News.

Wintermute said that it would revise its expectations if the US presidential election resulted in a change of leadership at the Securities and Exchange Commission — which would open the door for Ethereum ETFs to implement a staking feature.

Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart, meanwhile, have said that Ethereum ETFs could garner between 15% to 25% of the assets that flowed to Bitcoin ETFs.

This expectation — partially based on the demand that Hong Kong Ethereum ETFs experienced compared with Hong Kong Bitcoin ETFs — would mean US Ethereum ETFs would amass between $4.8 billion and $8 billion in a year.

Tom Carreras is a markets correspondent for DL News. Got a tip about Ethereum ETFs? Reach out at [email protected]

by dlnews