Ethereum is getting an ETF (or several) and it could lead to a big price increase.
It’s been a wild ride for Ethereum (ETH -1.02%) over the last few years. Since its launch in 2015, the cryptocurrency has grown by nearly 128,000% thanks to its new smart contracts and dominance of the decentralized finance (DeFi) economy. Still, as impressive as the past decade has been, his story may just be beginning.
On May 23, the Securities and Exchange Commission (SEC) cleared the way for approval of a mock Ethereum exchange-traded fund (ETF). When completed, this process essentially opens up the cryptocurrency to a new set of buyers and places additional demand on its deflationary supply. Here’s why the decision is so historic and what it could mean for the world’s second most valuable cryptocurrency.
Image source: Getty Images.
A landmark decision
Just a few weeks ago, the chances of a spot Ethereum ETF approval seemed slim. Many analysts estimated there was only a 25% chance, but on Thursday, May 22, things took a turn for the better when rumors began to swirl that the SEC had a change of heart.
The next day, it was officially announced that the SEC would approve all eight 19b-4 filings, paving the way for Ethereum ETF approval. It’s not exactly the same as full approval, but that final step is almost guaranteed at this point. On the current timeline, the SEC is expected to approve the S-1 filings (the official documents that put the ETFs into effect) sometime in mid-to-late summer.
The reason an ETF is so important comes down to its ability to democratize access for investors. With the ETFs, investors can now gain Ethereum exposure by simply buying shares as they would with a stock on a brokerage. Gone are the days of navigating crypto exchanges or managing digital wallets.
In addition, and perhaps most importantly, the approval of an ETF means that institutional investors can join the game. Without an ETF, these investors have been reluctant to get into crypto due to a lack of regulatory guidance and custodial concerns. This is why not only Ethereum’s, but all cryptos, rise over the years has been driven by retail investors.
But ETFs provide an easy and accessible way for institutions to buy. And that’s a great thing, because institutional investors are known for their vast resources and deep pockets.
Mapping the future trajectory
To quantify the impact an Ethereum ETF has, we can look back at Bitcoin’s spot ETF journey. In January, Bitcoin became the first cryptocurrency to get a spot ETF, which was a landmark event in the world of crypto adoption and evolution. The 11 initial Bitcoin ETFs were a massive hit and quickly became one of history’s most successful ETF launches. In just four months, they attracted more than $38 billion and at one point bought up 10 times the daily supply of Bitcoin, effectively introducing a supply shock that sent Bitcoin’s price soaring to an all-time high.
While Ethereum ETFs are unlikely to be as popular as Bitcoin ETFs simply because Bitcoin is the most well-known crypto asset, Ethereum will still benefit significantly. This is because Ethereum’s market cap is smaller than Bitcoin’s. In other words, it will take less capital to move Ethereum’s price than Bitcoin’s.
We can even speculate how much Ethereum’s price might move (emphasis on speculate). Since the Bitcoin ETFs launched, approximately $425 billion has been added to its market cap. Not all of this was the direct result of the ETFs buying Bitcoin, but we can use it as a proxy to measure the effect of the ETFs.
If Ethereum ETFs were half as successful as the Bitcoin ETFs, it would add $212 billion to its market cap, or roughly a 45% increase. If that were to happen, Ethereum’s price would rise to $5,300, a new all-time high.
The way forward
While we can only speculate about the exact demand that the Ethereum ETFs will generate, one thing is certain: Ethereum is about to be unlocked for a new class of deep-pocketed investors.
The impact of these ETFs will unfold over time, as institutional investors typically require extensive research and due diligence before making allocations. Considering the success of Bitcoin ETFs and the recent trend of institutions disclosing Bitcoin holdings, it is likely not a matter of if, but when these investments will materialize.
Meanwhile, Ethereum presents a compelling investment opportunity. Despite the current price being around 25% below its peak, Ethereum’s fundamentals have never been stronger. As we approach full ETF approval, expect increasing demand for the world’s second most valuable cryptocurrency.
Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
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