Ethereum ETF Approval: Will it Trigger a “Sell The News” Reaction Similar to Bitcoin ETF?

The upcoming introduction of Ethereum exchange-traded funds (ETFs) has stirred considerable speculation in the cryptocurrency market, akin to the excitement and subsequent impact witnessed with Bitcoin ETFs. Matt Hougan, the Chief Investment Officer (CIO) at Bitwise, believes these ETFs could have a significant effect on the price of Ethereum (ETH) and could potentially propel it to a new all-time high.

Hougan anticipates that the initial weeks following the ETF launch may bring volatility to Ethereum. While there could be outflows from existing investment vehicles like the Grayscale Ethereum Trust (ETHE), he remains bullish on the long-term outlook. He expressed confidence that new price highs will be reached by the year’s end, and if investment flows exceed expectations, the price could surge even further.

The Securities and Exchange Commission (SEC) has given the green light to eight Spot Ethereum ETFs by approving their 19b-4 forms. Notable financial institutions such as BlackRock, Bitwise, Fidelity, and VanEck are among those granted approval. These milestones represent a significant stride towards the introduction of ETFs that have the potential to attract substantial institutional and retail investments.

Drawing a parallel to Bitcoin, Hougan highlighted that since the inception of Bitcoin ETFs, these funds have acquired a significantly larger amount of BTC than miners have produced. This influx of institutional capital has been a driving force behind Bitcoin’s price surge of around 40% since the ETFs’ launch and over 100% since markets began pricing in their approval in late 2023.

Hougan pointed out that the impact on ETH could be more pronounced due to unique factors within the Ethereum ecosystem. Unlike Bitcoin, ETH has maintained a near-zero short-term inflation rate over the past year. This characteristic has set the stage for a scenario where a substantial amount of bitcoin buying per year was needed just to maintain its value.

Ethereum operates on a proof-of-stake protocol, where stakers are not compelled to sell newly acquired assets to cover operational costs as Bitcoin miners are. This distinction could reduce selling pressure on Ethereum, potentially allowing its price appreciation to outstrip that of Bitcoin in response to ETF inflows. Additionally, a significant portion of Ethereum’s supply is locked up in staking contracts or decentralized finance (DeFi) applications, making it less readily available for immediate sale. Hougan estimates that around 40% of Ethereum is currently inaccessible for sale.

Looking ahead, Hougan envisions that a successful launch of an Ether ETF could result in substantial inflows that might challenge Ethereum’s previous price records. Given the dynamics at play, he finds it difficult to imagine Ether not testing its previous high if the spot Ethereum ETFs prove successful and witness the anticipated level of inflows.

At the latest trading update, the price of Ethereum was recorded at $3,486.93, showing a gain of over 2%. Market sentiment is positive regarding the smooth ETF launch on Tuesday, July 23. Consequently, Ether whales like TRON founder Justin Sun have been increasing their ETH holdings. While the ETF launch may not trigger widespread profit-taking, some prominent investors might capitalize on the price surge once these funds become tradable.