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From $40,000 to $70,000, the approval of the Bitcoin spot ETF has played a good catalytic role in the Bitcoin price. Now, the market is looking forward to the approval and comprehensive trading of the Ethereum spot ETF to further boost confidence.
The 19b-4 form of 8 spot Ethereum ETFs has been approved by the SEC and is expected to officially begin trading after the S-1 registration statement takes effect in a few weeks. The addition of traditional asset management giants such as BlackRock is expected to bring Ethereum into the view of more traditional investors.
For ordinary investors, the cost and liquidity of ETFs, as well as the background and reputation of publishing institutions, are important factors to consider when investing in Ethereum ETFs. Currently, the crypto market is ushering in a new innovation cycle. Coupled with the macro improvement, the expected further release of liquidity in the currency cycle, and the upcoming US election cycle, the crypto market is expected to continue its good upward trend.
Introduction
Since the US SEC approved the Bitcoin spot ETF earlier this year, the legitimacy of cryptoassets as an emerging investment category has been greatly strengthened. This is undoubtedly an important moment for global investors. We are getting closer to the turning point of the integration of traditional finance and cryptoassets.
Since its launch, the Bitcoin spot ETF has attracted the attention of various important institutional investors. US state mutual funds, major banks, top hedge funds, well-known asset management companies, Investment Advice companies, and other commercial companies have all poured in. Currently, the US Wisconsin government fund is one of the largest holders of BlackRock's Bitcoin spot ETF.
The large-scale entry of institutional investors has also played a good catalytic role in the price of Bitcoin itself (with a nearly 70% increase in less than two months). Now, the market is looking forward to the approval and comprehensive trading of the Ethereum spot ETF to further boost confidence.
As the second largest crypto by market capitalization, Ethereum has the widest decentralized application ecosystem (dApps). A few weeks ago, the US SEC officially approved the 19b-4 form of eight spot Ethereum ETFs, including BlackRock, Fidelity, and Grayscale. This news not only caused the price of Ethereum to rise by more than 10% in a few hours, but also opened the door for Ethereum to further move towards traditional Financial Market.
Although trading can only officially begin after the S-1 registration declaration takes effect, the approval of 19b-4 actually consolidates Ethereum's position as a digital commodity. This article will comprehensively analyze the investment value, selection strategy, and future prospects of various spot ETFs of Ethereum, the second largest crypto in the crypto market.
In addition, RockFlow has previously delved into the development history, current business status, and investment value of multiple high-quality US stock companies. Please click to view.
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303% increase in one year - ETHE
Grayscale Ethereum Trust Fund ETHE was once one of the most important tools for US stock investors to invest in Ethereum. The fund is published and managed by Grayscale Fund, a subsidiary of the digital currency group Digital Currency Group, and its asset size once exceeded $10 billion. It was established in December 2017 and listed for trading in July 2019, using the same trust structure as GBTC.
Theoretically, the price of ETHE should fluctuate around the holding value of ETH, but in reality, its secondary price performance is not completely in line with the market. Since its listing in 2019, it has maintained a positive premium over Ethereum for a long time, even exceeding 1000% at one point. However, since February 2021, ETHE has entered a discount mode and continued to expand during the bear market.
The main reason for the long-term discount is related to the inability to redeem the product directly. In addition, the limitations of arbitrage opportunities, the forced position squaring of large speculators, the discounting of opportunity costs, and the impact of competitive products have also led to the expansion of discounts. Therefore, ETHE has not been able to track the price of Ethereum itself well in the past few years.
But precisely because of the bear market, this discount has created excellent bottom fishing opportunities - compared to the nearly 100% increase in Ethereum over the past year, ETHE's annual increase has reached 300%.
Given that multiple publishers are actively applying for Ethereum spot ETFs, Grayscale is also actively promoting the conversion of ETHE into a spot ETF, which is expected to smooth out the discount. In the foreseeable future, ETHE is expected to become one of the largest Ethereum spot ETFs in the US, similar to GBTC to Bitcoin.
8 Ethereum spot ETFs expected to be officially approved
As mentioned earlier, the 19 b-4 forms of 8 spot Ethereum ETFs have been approved by the SEC, as shown in the following figure.
ARK 21Shares Ethereum ETF: jointly applied by well-known fund ARK Ark Fund and digital asset management company 21Shares. It should be noted that ARK has already successfully published the Ethereum futures ETF - ARK21Shares Active Ethereum Futures ETF (code: ARKZ), which mainly allocates funds to Ethereum futures products.
Bitwise Ethereum ETF: Bitwise has taken the lead in updating the S-1 form of the Ethereum spot ETF, which is the first submission among all ETF publishers recently. It also stated that Pantera Capital is interested in purchasing the ETF product for $100 million. Previously, as an investor in Bitwise, Pantera Capital had purchased $200 million of Bitwise's Bitcoin spot ETF (code: BITB).
Fidelity Ethereum ETF: Financial Services giant Fidelity Investments hopes to launch an ETF that holds Ethereum crypto, and this application document happened to be released the day after BlackRock submitted its own Ethereum ETF application.
Franklin Ethereum ETF: Franklin's application was submitted in early 2024.
Greyscale Ethereum ETF: As mentioned earlier, Greyscale hopes to convert its Ethereum trust ETHE into a spot ETF product.
Invesco Galaxy Ethereum ETF: This ETF, jointly applied for by Invesco and Galaxy Capital, aims to provide exposure to the spot price of Ethereum.
iShares Ethereum Trust: BlackRock submitted an application at the end of 2023. The ETF aims to provide direct investment in Ethereum and is expected to boost market confidence.
VanEck Ethereum ETF: As a well-known US asset management company and ETF giant, VanEck is known for its pioneering role. The company is also actively applying for Ethereum ETF products.
It is worth noting that these applications reflect the significant interest of mainstream Financial Institutions in integrating Ethereum into traditional investment portfolios, and most of them, similar to Bitcoin spot ETFs, have found Coinbase as the asset custodian, as shown in the figure below.
Why hasn't the Ethereum spot ETF caused a sustained surge in Ethereum? To be precise, it is not yet "fully passed". We need to clarify the difference between the two documents.
The 19b-4 document is used to notify the SEC of rule changes that allow ETFs to be traded on exchanges, such as introducing new products, modifying trading mechanisms, or other relevant exchange policies. Once submitted, the SEC will review the proposal and publicly solicit public opinion before deciding whether to approve it.
However, the listing of ETFs also requires the ETF publisher to obtain an S-1 document approved by the SEC. The S-1 document is not the final step, but it is a crucial step under the supervision of the US SEC. Only when the SEC approves the S-1 document to take effect, can fund managers continue to prepare for the official listing of ETFs, including determining the listing date and conducting marketing.
Passing 19b-4 means there is hope for this matter; passing S-1 means DingTalk on the board. Currently, this process takes weeks to months, so the price of Ethereum will not skyrocket in the short term.
However, since multiple spot Ethereum ETFs have been listed on the DTCC website, they are likely to repeat the script of Bitcoin spot ETFs.
A Brief Investment Guide for Ethereum ETFs
In a previous analysis article on Bitcoin spot ETFs, the RockFlow research team provided some strategies, focusing on three indicators: fees, liquidity, and transaction costs. Investors who buy and hold should focus on fees, active traders should pay special attention to liquidity, and all relevant parties should pay attention to how the publisher's own transaction costs ultimately affect ETF performance.
As an ordinary investor, if you want to invest in Ethereum ETF, the idea is actually similar. Considering that the underlying assets of the first batch of Ethereum spot ETFs are the same, the final returns will be almost the same. Therefore, the RockFlow investment research team believes that everyone can focus on two dimensions:
The cost and liquidity of Ethereum ETFs
For ETFs, cost is obviously very important. Prioritizing competitive low-fee ETFs will maximize your long-term returns, while liquidity is crucial for trading convenience. ETFs with larger assets under management usually mean stronger investor confidence and stability, making them more suitable for long-term holding.
Background and reputation of the ETF publisher
The first batch of Ethereum ETF publishers are all established companies, and they can often provide higher reliability. The performance of giants publishing ETFs in the past is enough to prove this.
How to view the future of Ethereum ETF?
Bloomberg research shows that if the Ethereum ETF is successfully approved, the future inflow of funds will account for 10-20% of the inflow of Bitcoin spot ETF. Given that the price of Bitcoin was about $40,000 when the ETF was launched and rose to $70,000 two months later (a 75% increase), it is expected that ETH will show a similar trend (pushing the asset to break through the historical high of $4,800).
The logic behind this number depends on several factors: compared to Bitcoin, institutional investors currently have less interest in Ethereum; currently, the trading volume of Ethereum futures ETF is much smaller than that of Bitcoin futures ETF (10-20%); currently, the trading volume of Ethereum spot is less than that of Bitcoin (about 50%); currently, Ethereum accounts for about one-third of Bitcoin's market value.
However, there are still significant differences between Ethereum and Bitcoin themselves, including but not limited to:
Ethereum does not have the same level of "structural selling pressure" as Bitcoin, because Ethereum validators do not incur operating costs like Bitcoin miners (forcing them to sell a portion of their mined Bitcoin). Currently, 38% of Ethereum supply is in an on-chain staking state, with low willingness to sell. Ethereum is more reflexive than Bitcoin. This reflexivity can be expressed through price behavior leading to on-chain activity, resulting in more Ethereum being destroyed, which can better promote the narrative of Ethereum, more on-chain activity, and more Ethereum being destroyed. Ethereum is a more flexible "crypto bull market bullish option", while Bitcoin is "digital gold". In the short term, the volatility of Ethereum is expected to continue to expand.
Overall, Ethereum is more likely to exceed Bloomberg's forecast of 10-20% net inflows of Bitcoin.
From a broader perspective, the current crypto market is experiencing an innovation cycle. Coupled with the macro improvement and the expected further release of liquidity in the currency cycle, as well as the upcoming US election cycle, the adoption of spot ETF products has clearly eliminated important compliance concerns in the market. The RockFlow research team believes that the crypto market is expected to continue its good upward trend.
RockFlow will continue to track the progress of the Ethereum spot ETF and the latest trends in the crypto market. If you want to learn more about the details of the previous listing of the Bitcoin spot ETF, the current development status and potential impact after listing, you can check out RockFlow's previous in-depth analysis articles.
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About the Author
The RockFlow research team specializes in long-term analysis of high-quality companies in the US stock market, as well as emerging markets in Latin America and Southeast Asia, focusing on industries with high potential such as cryptocurrencies, biotechnology, and more. The core members of the team come from top technology companies and financial institutions including Facebook, Baidu, ByteDance, Huawei, Goldman Sachs, and CITIC Securities. Many of them have graduated from leading universities such as Massachusetts Institute of Technology (MIT), University of California, Berkeley, Nanyang Technological University, Tsinghua University, and Fudan University.
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