It worked! ETH ETFs were created. But what does this mean? We asked experts about it.
Importance of ETH ETFs
Sebastian Seliga, zondacrypto analyst, points out that ETFs will influence the market in many ways.
ETH ETFs provide an easy and regulated way for both institutional and retail investors to gain exposure to ether. As a result, they can drive wider adoption and integration of ETH into traditional investment portfolios. This, in turn, may attract a significant inflow of capital to the cryptocurrency market, which will have a positive impact on its further development
– he said.
This may affect the price:
Analysts predict an increase in the value of ETH by up to 60%, based on the market reaction to the approval of Bitcoin ETFs in January 2024, when the price of Bitcoin rose from $42,000 to over $73,000 in two weeks. Open interest in ETH futures has reached a record high of $14 billion, indicating increased institutional interest.
Seliga also noted that “the approval of (ETFs) could lead to increased regulatory clarity and a more robust legal framework for the cryptocurrency industry as the SEC has carefully assessed Ethereum ETFs' compliance with securities laws. This could pave the way for further integration of cryptocurrencies into the traditional financial system.”
The approval confirms Ethereum's status as a commodity rather than a security, as previously argued by the SEC. This could set a precedent for other cryptocurrencies, offering a clearer regulatory path for future projects in this space
– added.
All this together will lead to increased institutional adoption, as “institutions have long been waiting for regulatory clarity and approved investment instruments to be able to increase exposure to the cryptocurrency market.”
Potential disadvantages of investing in an ETH ETF
It is worth noting that investing in new ETFs, once they hit the stock exchanges, will also be troublesome. Seliga noted in an interview with us that “investing in ETH ETFs may be more expensive than purchasing (cryptocurrency) ETH directly.
ETFs have expense ratios ranging from 0.39% to 1.5%, which is much higher than the trading fees charged by cryptocurrency exchanges. These fees can reduce investor profits over time, especially during bear markets
– he pointed out.
In addition, there is the most important disadvantage of ETFs as such, often pointed out by investors: investors do not own assets directly, but only their reflections in fund units.
This means that investors have limited control over their investment decisions and must rely on the strategies of the fund manager
– warned Selig.
Investing in ETFs exposes investors to the credit risk of the issuer. If the issuer is unable to accurately replicate ETH price movements, it may result in losses for investors
– added.
What does Ryan Lee, Bitget's chief analyst, think about this?
We also asked the Bitget exchange for their opinion. Analyst Ryan Lee spoke on her behalf.
According to Lee, “the approval of a spot ETH ETF could increase investment, financing and liquidity from the US exchange, supporting the ETH price.
This situation may mirror the experience of Bitcoin, where external liquidity has significantly increased its price, leading to new all-time highs in a relatively short period of time. An ETH ETF could set a new standard for other cryptocurrencies looking to launch their own ETFs – especially in the spot market. Cryptocurrencies with ether-like features, such as Proof-of-Stake and staking mechanisms, could also follow this path
– added.
When it comes to price, the stock exchange analyst sees the matter similarly to Selig:
In terms of price impact, ETH itself, along with highly correlated tokens in the LSD, LSDFi and layer 2 sectors, will likely see significant increases. The ETH/BTC rate may also surge to a six-month high above 0.06. Assuming BTC remains at current levels, ETH could potentially rise to over $4,200. Additionally, due to market sentiment, the ETH/BTC exchange rate may return to last year's high of between 0.07 and 0.075, placing the ETH price between $5,000 and $5,500.
ETFs: a step in the right direction
The creation of ETH ETFs is a step in the right direction. It is worth adding, however, that the funds are not and will probably not be listed on stock exchanges for several weeks. We will have to wait a few months for all the effects described above. However, the fact that the SEC said “yes” is a great breakthrough for the cryptocurrency market.
