Ethereum (ETH-USD) spot exchange-traded funds (ETFs) are about to make waves in the financial market. Galaxy Research says these ETFs could pull in a hefty $5 billion in net inflows within the first five months of trading. This is coming on the heels of the Securities and Exchange Commission (SEC) giving the initial thumbs-up to the filings, with the final approval potentially landing as soon as July 4.
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Unique Characteristics of Ethereum
One thing that stands out is that Ethereum is more sensitive to ETF inflows compared to Bitcoin. Why? Because a huge chunk of ETH’s total supply is tied up in staking, bridges, and smart contracts. With less ETH floating around on centralized exchanges, any new demand from these ETFs could have a bigger impact on its price.
Expected Sources of Demand
The main inflows for these new Ethereum ETFs is expected to come from independent investment advisors and broker/dealer platforms. Galaxy Research analysts are betting that net inflows into ETH ETFs could be 20-50% of those into BTC ETFs. They’re aiming for around 30%, which means roughly $1 billion per month.
Challenges for ETH ETF Demand
Of course, it’s not all smooth sailing. There are some hurdles that might dampen the demand for Ethereum ETFs. For starters, the lack of staking rewards could be a turn-off. On top of that, potential outflows from the Grayscale Ethereum Trust (ETHE) might put a damper on things. Galaxy estimates negative flows of about 319,000 ETH per month, or $1.1 billion. But, since ETHE holds a smaller slice of Ether compared to Grayscale’s Bitcoin Trust, the hit on ETH prices might not be as severe.
We can see below on TipRank’s Hedge Fund Holding tool that many investment funds have decreased their holdings in ETHE. Interestingly, one of the most famous investors Cathie Wood has decreased her position in ETHE by 24.59%.
Wrapping Up
To sum it up, the approval and launch of Ethereum spot ETFs are set to bring in substantial inflows and could really shake up the market. With the SEC’s final decision just around the corner, everyone in the financial world is on high alert. If these ETFs get the go-ahead, it could really boost Ethereum’s market presence and make it a more appealing option for investors.
