Ethereum ETF Approval: Is it a “Sell The News” Event Similar to Bitcoin ETF?

The imminent introduction of Ethereum exchange-traded funds (ETFs) has ignited substantial speculation in the cryptocurrency realm, drawing parallels to the excitement and subsequent impact witnessed with Bitcoin ETFs. Matt Hougan, Chief Investment Officer (CIO) at Bitwise, believes these ETFs could have a significant impact on Ethereum’s price, potentially propelling it to new all-time highs.

Hougan foresees initial volatility in the weeks following the ETF launch for Ethereum but remains bullish on its long-term outlook. He anticipates potential outflows from existing investment vehicles like the Grayscale Ethereum Trust (ETHE) but is confident that new price highs will be reached by year-end. Should the inflows surpass market expectations, the price of Ethereum could soar even higher.

The Securities and Exchange Commission (SEC) has greenlit 19b-4 forms for eight Spot Ethereum ETFs, with major financial players such as BlackRock, Bitwise, Fidelity, and VanEck securing approvals. These milestones signal a significant stride towards the introduction of ETFs that could attract substantial institutional and retail investments.

Drawing a comparison to Bitcoin, Hougan points out that since the launch of Bitcoin ETFs, the funds have acquired significantly more BTC than miners have generated. This influx of institutional capital has been a driving force behind Bitcoin’s price surge, which has soared approximately 40% since the ETFs’ inception and over 100% since markets began pricing in their approval in late 2023.

Hougan argues that Ethereum’s response to ETFs could be even more pronounced due to unique factors within the Ethereum ecosystem. Unlike Bitcoin, Ethereum has maintained a near-zero short-term inflation rate over the past year, requiring substantial bitcoin buying annually just to maintain its value.

Ethereum’s proof-of-stake protocol, where stakers do not face the same pressure to sell assets as Bitcoin miners do, could alleviate selling pressure on Ethereum. Additionally, a significant portion of Ethereum’s supply is tied up in staking contracts or decentralized finance (DeFi) applications, making it less readily available for sale. Hougan estimates that around 40% of Ethereum is currently unavailable for immediate sale.

Looking ahead, Hougan envisions that a successful Ether ETF launch could lead to significant inflows, potentially challenging Ethereum’s previous price records. With Ethereum’s current price standing at $3,486.93 and gaining over 2%, the market is optimistic about a smooth ETF launch on July 23. While the launch may not trigger a widespread sell-off, some whales might capitalize on price increases once these funds hit the market.