Markets
21Shares Executive Discusses ETH ETF Launch, Market Dynamics
Ethereum ETFs will finally hit US markets on July 23, 2024, with approval from the Securities and Exchange Commission.
Since the introduction of Bitcoin ETFs in January, excitement around its Ethereum equivalents has grown steadily. On their first day, Ethereum ETFs Raised Over $1.1 Billion in trading volume.
This initial success has the market buzzing with speculation about what’s next. Will Ethereum ETFs mirror Bitcoin’s success? Will we see more cryptocurrency ETFs?
Crypto.news had the opportunity to speak with Federico Brokate, VP, Head of the US Business for 21Shares, one of the largest crypto ETF issuers, to get some insights into the topic. Despite being delayed compared to Bitcoin in launch, Brokate expects Ethereum ETFs to see a surge in adoption in the coming months.
Bitcoin ETFs have seen remarkable success, with $17 billion in net inflows since their launch. Given Ether’s relative unfamiliarity and different market dynamics, including a lower market cap, do you expect Ether ETFs to see a similar level of success?
The success of the bitcoin spot ETF suite has been unparalleled, exceeding all expectations driven by institutional and retail investor adoption. For ethereum spot ETFs, similar to bitcoin, we expect to see strong demand from all types of investors as well. If we look at other ETF markets around the world, such as the European market for example, what we find is that the asset split between Bitcoin and Ethereum tends to follow their market cap weighting. This could translate into bitcoin spot ETFs capturing around 70% of the assets while ethereum spot ETFs would capture around 30%. What we saw on the first day of trading largely supports this theory: ethereum spot ETFs saw around $1 billion in total volume, which is around 23% of what bitcoin spot ETFs saw on their first day.
Do you think the launch of ETH ETFs was a success?
The Spot Ethereum ETF category saw over $1 billion in first-day trading volume, which we consider a very successful first day. This demonstrates the demand and enthusiasm for digital asset exchange-traded products among US investors. Every Spot Ethereum ETF in the category ranked in the top decile for first-day trading volume for all ETFs launched in the past year in the US. This is very impressive for a new product category, given that it launched during the traditionally slower summer months. We expect to see more accelerated adoption in the fall.
Ethereum is seen as a technology investment rather than a store of value. How do you think this perception will impact the success and adoption of Ether ETFs versus Bitcoin ETFs?
Bitcoin and Ethereum are the two largest cryptocurrencies by market cap; however, Bitcoin’s value proposition and portfolio fit are better understood by investors more broadly. Bitcoin’s value proposition is well defined as digital gold. It provides investors with uncorrelated returns and serves as a hedge against economic instability. Ethereum, on the other hand, is more complex in nature and is similar to an investment in growth or technology stocks. In the short term, we see Ethereum as a platform for tokenization, stablecoins, and decentralized finance. In terms of adoption, our clients around the world tend to add both exposures to their portfolios rather than replacing one with the other. This is supported by the fact that adding both exposures to a traditional 60/40 portfolio can provide investors with a superior risk-adjusted return profile. We believe in the disruptive potential of the Ethereum platform and investors will too, as they learn more about it.
Given that many asset managers have already allocated significant capital to Bitcoin ETFs and may have reached their cryptocurrency investment limits, will this impact their enthusiasm and potential investment in Ether ETFs?
The market has proven that digital assets are here to stay, with many asset managers, particularly RIAs, being early adopters of digital asset ETFs. However, we believe we are still very early in the adoption process by the broader asset ecosystem and are, in fact, starting to see an acceleration here as they complete their lengthy due diligence process. Adoption by asset managers will not happen all at once. We will see varying rates of adoption from this cohort, but ultimately, we believe they will be among the largest buyers of digital asset ETFs going forward. Ultimately, we see the demand there and are excited to be able to offer investors in the US market exposure to the Bitcoin and Ethereum blockchains via the wrapper ETF on a regulated exchange.
Now that another ETF has arrived, do you think other cryptocurrencies like Solana will be next in line for ETF approval? What factors might influence this decision?
21Shares is excited to offer our U.S. clients an ETF that provides access to the Solana ecosystem. Product innovation is a key part of our mission to offer our clients easily accessible digital asset products. We are among the first issuers to file with the SEC for a Solana ETF and are working with them to bring this product to the U.S. market. We believe many cryptocurrencies qualify as eligible underlyings for 33′ Act ETFs. While the inclusion of a digital asset in a CME futures contract has legal precedent for subsequent ETF approval, it should not be the sole criterion for ETF eligibility. We have a great Solana ETF in Europe and look forward to potentially bringing this exposure to our clients in the U.S., expanding access to cryptocurrencies as an asset class.