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Ethereum Co-Founder Explains Why ETFs Will Create a Supply Crisis – DL News
- The SEC appears ready to approve Ethereum spot ETFs.
- A significant portion of Ether is locked into staking, DeFi protocols, and DAOs.
- The asset could experience a supply crunch.
After months of radio silence, the Securities and Exchange Commission appears ready to approve spot Ethereum exchange-traded funds.
The resulting “shutdown” in demand for Ether will likely lead to a supply crisis, said Joe Lubin, co-founder of Ethereum and founder and CEO of crypto infrastructure firm Consensys DL News.
Institutions that have already gained exposure to Bitcoin through newly launched ETFs on the asset “will most likely want to diversify into that second approved ETF,” Lubin said.
“There will be significant natural, pent-up pressure to buy Ether” through ETFs, he said, but there will be less supply to meet that demand than when spot Bitcoin ETFs were approved in January.
In the case of Bitcoin, authorized participants – companies tasked with buying Bitcoin on behalf of the ETFs as new shares are created every day – could simply buy inactive coins on exchanges or through over-the-counter counterparties.
But onchain data Shows that over 27% of the total Ether supply is already stationed on the Ethereum network. It is bound by contracts and earns a return for its owners.
“A lot of Ether is used in the core protocol, DeFi systems or DAOs,” Lubin said, referring to decentralized autonomous organizations.
In other words, not only is Ether’s market value lower than that of Bitcoin, making Ether’s price more responsive to inflows, but a significant portion of its supply is unavailable for ETF consumption.
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Furthermore, renewed activity on Ethereum will cause the network to burn through a substantial amount of the existing Ether supply over time, further limiting supply.
Even in the case of Bitcoin, banks were so desperate to purchase coins for ETFs that they approached at least one major Bitcoin mining group to acquire some of its Bitcoin holdings, DL News learned. The supply crunch for Ethereum ETFs could be even greater.
“This could be a pretty profound turning point” for Ethereum and the cryptocurrency industry as a whole, Lubin said.
Tom Carreras and Liam Kelly write about markets and DeFi for DL News. Do you have a recommendation for Ethereum ETFs? Contact tcarreras@dlnews.com or liam@dlnews.com