Analysis shows Ethereum ETFs could impact the market with $15 billion net flows by 2025
|- Ethereum ETFs could attract up to $15 billion in net flows by 2025, says Bitwise CIO.
- Low outflows in Ethereum Foundation wallets suggest bull cycle is yet to reach its peak.
- Ethereum traders are gradually turning bullish again following slight increase in ETH Taker Buyer Ratio.
Ethereum (ETH) is up more than 3% on Tuesday following predictions of ETH ETF inflows from Bitwise and VanEck filing a draft that allows its ETF to begin trading immediately if the Securities & Exchange Commission (SEC) approves it.
Daily digest market movers: $15 billion net flows, Form 8-A, Ethereum Foundation
In a recent analysis, Bitwise CIO Matt Hougan predicted that spot Ethereum ETFs could attract a net flow of $15 billion in their first 18 months.
Hougan arrived at the $15 billion figure by factoring in a comparison of Ethereum's market cap to Bitcoin, Grayscale's Ethereum Trust conversion, the international crypto ETP market, and Bitcoin's "carry trade."
The Securities & Exchange Commission (SEC) greenlighted issuers' 19b-4 filings on May 23, but the agency must approve their S-1 registration statements before the ETFs can begin trading.
According to Hougan, investors may allocate capital to Bitcoin and Ethereum ETFs in proportion to their combined market capitalization — 74% and 26%, respectively.
While Bitcoin ETFs currently have about $56 billion in assets under management (AUM), he expects this figure to reach $100 billion by the end of 2025 when platforms like Morgan Stanley and Merrill Lynch potentially approve them. Using $100 billion as a reference and subtracting Grayscale's $10 billion Ethereum Trust conversion to an ETF, ETH ETFs could see a net flow of $25 billion. However, international Ethereum ETFs only gather around 22% of the combined market share compared to Bitcoin. This reduces the estimate from $25 billion to $18 billion.
Furthermore, Hougan expressed that institutions won't participate in an Ethereum "carry trade" as they do with Bitcoin ETFs due to the absence of staking in US spot ETH ETFs. A carry trade involves buying an asset in the spot market and shorting its equivalent in the futures market. The aim is to profit from the price difference when the futures contract of the asset trades at a premium to its spot price. Considering that $10 billion of Bitcoin ETFs AUM is "linked" to the carry trade, removing that from the Bitcoin ETFs will see their estimated AUM fall to $90 billion. In comparison, Ethereum ETFs will see their estimated netflows drop to $15 billion by the end of 2025.
"My gut tells me we'll do better than that (...) but even $15 billion in net new demand will have a dramatic impact on the Ethereum market," said Hougan.
Meanwhile, VanEck filed a Form 8-A with the SEC for its spot ETH ETF on Monday. The filing signifies a registration that allows issuers to begin trading their products on exchanges immediately after the SEC approves them. Issuers filed similar forms for spot Bitcoin ETFs seven days before launch.
"Good sign for our July 2 over/under (7 days from now). But again, anything poss. Sure, we'll hear more soon," said Bloomberg analyst Eric Balchunas.
Also, according to data from IntoTheBlock, the Ethereum Foundation often executes large ETH sales — $60M to $100M — during bullish cycles, "often aligning these sales almost perfectly with market peaks." However, the Foundation's wallets have yet to see significant outflows in the current cycle. This may indicate that the current cycle has yet to reach its peak or that the Ethereum Foundation has changed its approach.
Ethereum Foundation USD Netflows
ETH technical analysis: Ethereum traders may be turning bullish again
Ethereum is trading around 3,391 on Tuesday following a slight recovery across the crypto market. ETH liquidations are at $20.39 million, with long liquidations coming in at $8.79 million and shorts trending higher at $11.60 million.
Ethereum's Taker Buy Sell Ratio has bounced back to 1.012 after reaching 0.86, its lowest level since the beginning of the year. The Taker Buy Sell ratio is the volume of derivatives buy orders vs. sell orders. A value above 1 indicates that bullish sentiment is becoming dominant, while a value below 1 signifies prevailing bearish sentiment.
As a result, we can conclude that ETH traders are becoming slightly bullish again.
ETH/USDT 4-hour chart
The recent price drop may have proven to be a buying opportunity for traders, with the potential launch of spot ETH ETFs in sight. If ETH sustains an upward movement, it faces resistance at the $3,685 price level. The $3,203 support could prove crucial in the case of a decline.
Ethereum FAQs
Ethereum is a decentralized open-source blockchain with smart contracts functionality. Serving as the basal network for the Ether (ETH) cryptocurrency, it is the second largest crypto and largest altcoin by market capitalization. The Ethereum network is tailored for scalability, programmability, security, and decentralization, attributes that make it popular among developers.
Ethereum uses decentralized blockchain technology, where developers can build and deploy applications that are independent of the central authority. To make this easier, the network has a programming language in place, which helps users create self-executing smart contracts. A smart contract is basically a code that can be verified and allows inter-user transactions.
Staking is a process where investors grow their portfolios by locking their assets for a specified duration instead of selling them. It is used by most blockchains, especially the ones that employ Proof-of-Stake (PoS) mechanism, with users earning rewards as an incentive for committing their tokens. For most long-term cryptocurrency holders, staking is a strategy to make passive income from your assets, putting them to work in exchange for reward generation.
Ethereum transitioned from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) mechanism in an event christened “The Merge.” The transformation came as the network wanted to achieve more security, cut down on energy consumption by 99.95%, and execute new scaling solutions with a possible threshold of 100,000 transactions per second. With PoS, there are less entry barriers for miners considering the reduced energy demands.
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