TL;DR
- A Bitwise executive, Matt Hougan, is bullish on spot Ethereum ETFs in the US, predicting a significant inflow of $15 billion within the first 18 months of launch.
- Hougan’s prediction considers several factors including the relative market sizes of Bitcoin and Ethereum, along with investor allocation trends observed in international crypto ETP markets.
- With the SEC’s approval in May, spot Ethereum ETFs are expected to launch in the US imminently. Bloomberg ETF analyst Eric Balchunas suggests a launch date as early as July 2nd.
The long-awaited launch of spot Ethereum ETFs (exchange-traded funds) in the US is upon us, and analysts are enthusiastic about the potential for these investment vehicles to attract significant capital into the cryptocurrency market.
1/ Ethereum ETPs will attract $15 billion in net flows in their first 18 months on the market.
A thread on how I get to this estimate.
— Matt Hougan (@Matt_Hougan) June 26, 2024
Matt Hougan, Chief Investment Officer at Bitwise, is particularly bullish on their prospects, predicting substantial inflows into spot Ether ETFs within their initial 18 months. In a recent analysis, Hougan stated, “Ethereum ETPs are poised to attract $15 billion in net flows during their first year and a half of trading.”
How Big Could the Inflows Be?
Hougan’s prediction stems from a comprehensive analysis that considers factors like the relative market capitalizations of Bitcoin and Ethereum, international crypto ETP markets, the conversion of Grayscale’s Ethereum Trust (ETHE) to an ETF, and the “carry trade” associated with spot Bitcoin ETFs.
A key assumption is that investors will allocate funds to Bitcoin and Ethereum ETFs in proportion to their respective market capitalizations.
In the event of lacking additional data points, Hougan clarifies that investors are expected to allocate their investments between BTC and ETH ETPs proportionally to their respective market capitalizations. Bitcoin maintains a market cap of $1.266 trillion (74% of the market), while Ethereum has a market cap of $432 billion (26% of the market).
Hougan’s percentages solely consider the top two cryptocurrencies based on market capitalization. When factoring in U.S. investor participation in spot Bitcoin ETPs, Hougan predicts that the amount could potentially hit $100 billion by the conclusion of 2025 as these ETFs evolve and become more widely embraced on platforms such as Morgan Stanley.
American investors have $56 billion invested in spot Bitcoin ETPs, as emphasized by Hougan. Taking into account Grayscale’s $10 billion Ethereum Trust conversion to an ETF and using $100 billion as a reference point, Hougan calculates a possible net inflow of $25 billion for spot Ethereum ETFs.
For further validation, Hougan analyzed international ETF markets in Canada and Europe, where the investment split between Bitcoin and Ethereum ETPs is similar (approximately 78% Bitcoin and 22% Ethereum).
Hougan points out that the near-identical asset allocation across these regions suggests this split broadly reflects the relative demand for BTC and ETH among ETP investors.
However, considering that international Ethereum ETPs only capture around 22% of the combined market share compared to Bitcoin, this reduces the estimate from $25 billion to $18 billion.
To maintain a conservative outlook, Hougan adjusts for the carry trade by removing $10 billion from the Bitcoin market size, resulting in an adjusted net inflow estimation by the end of 2025 of $15 billion for Ethereum ETPs.
At the time of writing, Ether trades at around $3,397, marking a 0.60% increase in the last 24 hours, according to data from CoinMarketCap.
Possible Spot Ethereum ETFs Launch Date
In the meantime, following the SEC’s approval of spot Ethereum ETFs in May, potential issuers are completing their registrations in preparation for the launch.
Companies such as VanEck have submitted revised Form S-1 registration statements as part of this procedure. Bloomberg ETF analyst Eric Balchunas has indicated that spot Ether ETFs may start trading in the United States as soon as July 2nd.
