The cryptocurrency market is on the verge of a significant development with asset managers eagerly preparing for the launch of new spot Ethereum ETFs pending approval from the US Securities and Exchange Commission (SEC). This move has sparked a wave of excitement in the industry as it opens up new avenues for investment in the rapidly growing digital asset sector.
Bitwise Chief Investment Officer (CIO) Matt Hougan has weighed in on the potential of these ETFs, predicting substantial inflows into the regulated market within the first months of trading. Hougan’s projections are not merely based on speculation but on a thorough analysis of available data, indicating a strong foundation for his estimations.
Hougan emphasizes the need to look at existing market data to support his forecast of $15 billion in net inflows during the initial 18-month period. He compares the market capitalizations of Bitcoin (BTC) and Ethereum (ETH) as a basis for his prediction, taking into account their respective market shares in the overall cryptocurrency market.
Considering the current market cap of Bitcoin and Ethereum, Hougan expects investors to allocate funds to Bitcoin and Ethereum exchange-traded products (ETPs) in proportion to their market capitalizations. With Bitcoin leading the market with a 74% share and Ethereum holding 26%, he anticipates significant growth in the Ethereum market once the ETFs are launched.
US investors already have billions invested in spot Bitcoin ETPs, which Hougan expects to reach over $100 billion by the end of 2025 as these ETFs gain approval on major platforms. To achieve parity, spot Ethereum ETFs would need to attract $35 billion in assets, a goal that he estimates could take around 18 months to accomplish.
Hougan acknowledges that actual inflows may vary due to various factors, such as the conversion of the Grayscale Ethereum Trust (ETHE) to an ETP on the launch day, bringing along $10 billion in assets. Taking this into account, the estimated net inflows needed to reach parity are adjusted to around $25 billion, presenting a more realistic scenario for the market.
To validate his estimates, Hougan looks at international ETF markets, particularly in Europe and Canada, which already offer Bitcoin and Ethereum ETFs. He notes that the asset split between the two cryptocurrencies in these markets is similar, with Bitcoin dominating around 78% and Ethereum holding 22% of the total Assets Under Management (AUM), providing further support for his forecast.
Impact of the Carry Trade
Hougan also considers the potential impact of the “carry trade” on Bitcoin and Ethereum ETP markets. While the carry trade strategy has been significant for US Bitcoin ETP flows, he points out that the Ethereum ETP carry trade is not as profitable for institutions. By adjusting for this factor in his analysis, he refines his estimate to $15 billion in net inflows for Ethereum ETPs.
The launch of new spot Ethereum ETFs holds immense potential for the cryptocurrency market, with asset managers gearing up for significant inflows once these ETFs are approved and launched. The careful analysis and projections made by industry experts like Matt Hougan provide valuable insights into the expected growth and impact of these new investment opportunities on the digital asset landscape.
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