Markets
Traders Hold Their Breaths on Ether ETF Fever
By Hannah Lang
(Reuters) – Aether may be nearing its moment of glory.
The world’s second-largest cryptocurrency has been in the shadows this year as its big brother, bitcoin, has hit all-time highs thanks to new U.S. exchange-traded funds designed to track its price.
However, with complementary Ether ETFs set to hit the market soon, some market participants are predicting that a price rally could occur above the November 2021 all-time high of $4,867.60.
“Consider the fact that ethereum has about half the level of spot liquidity,” said Thomas Perfumo, head of strategy at cryptocurrency exchange Kraken, referring to ether trading on exchanges compared to bitcoin. “Half the amount of liquidity means you need a smaller amount of absolute dollars coming into the market to have the same impact on ethereum prices.”
The cryptocurrency graveyards are full of investors who thought they could reliably predict these risky and volatile markets.
The possible dumping of tokens from the defunct Japanese exchange Mt. Gox has thrown a curveball at the market in recent days, hitting bitcoin and ether. Other factors, such as the timing of the US Federal Reserve’s interest rate cuts and the upcoming presidential election, could also hit cryptocurrencies.
“Market participants should be wary of a return of volatility in traditional markets and cryptocurrencies,” Jag Kooner, head of derivatives at cryptocurrency exchange Bitfinex, said in a research note. “Regulatory developments and macroeconomic policies will play a crucial role in shaping market dynamics.”
POINTED AND BLOCKED
Bitcoin soared to new highs in March, up to $73,803.25, two months after the first spot bitcoin ETFs began trading, from $45,947 before their launch. In contrast, ether remained far from its all-time high, trading as low as $4,093.7 in March.
Experts say that could change when ether ETFs hit the market in the coming weeks, noting that ether is in limited supply and that inflows into ETFs could have a magnified effect on the token’s price versus bitcoin.
According to Morningstar Direct, the new ether ETFs are not expected to generate the same investor enthusiasm as spot bitcoin ETFs, which had about $38 billion in assets as of the end of June.
Research from cryptocurrency manager Grayscale Investments, which is preparing to convert its current ether trust fund into an ETF, estimated that spot ether ETFs could meet 25%-30% of demand for bitcoin funds.
But when you look at market cap, given that Ether’s market cap is about a third of Bitcoin’s, there could be a comparable impact on the price per dollar of inflows into Ether ETFs, said Zach Pandl, managing director of research at cryptocurrency manager Grayscale Investments.
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“I think it’s similar to what we were seeing with Bitcoin earlier this year, where we think there’s going to be a lot of new demand for the product and that’s going to interact with a more limited supply picture than is commonly thought,” he said.
Unlike bitcoin, ether can be staked, or locked up for a period of time, in exchange for a yield. Just under 30% of the ether supply is staked, Pandl estimated, with another 10% or so locked up in smart contracts. That reduces the supply of ether available for purchase by new ETFs, which could push up the price, he said.
“The reason bitcoin ETFs had an impact on the price is because there was more demand for these ETFs than there was new supply of bitcoin,” said Matt Hougan, chief investment officer at Bitwise. “In [ether]the supply situation is even worse.”
Predictions about the impact the ether ETF could have on the token’s price vary widely, with global bank Standard Chartered estimating that ether could hit $8,000 by the end of the year. VanEck, which is poised to launch a spot ether ETF, raised its price target for ether to $22,000 by 2030 in May.
However, the impact of the new ETFs may already be priced into ether, some market observers warn. Although it has remained far from its all-time high, ether is still up more than 29% so far this year.
“For bitcoin and ethereum, they are more richly valued than they were when bitcoin products were launched earlier this year. That could account for a slightly lower effect,” Grayscale’s Pandl said.
(Reporting by Hannah Lang from New York; Editing by Pravin Char)