The approval of Ethereum ETFs in the US by the SEC has stirred up the crypto market in recent times. The launch of Bitcoin ETFs earlier this year was a major turning point for both the crypto market and financial markets in general. What are the expectations for the Ethereum ETF? Are we going to see a repeat of the rally after the Bitcoin ETF, or is something else awaiting us? In this analysis, we discuss the key points.
What is an ETF?
An ETF, or Exchange Traded Fund, is a fund traded on a public exchange, such as the US Nasdaq or the AEX in Amsterdam. An ETF gives investors exposure to a basket of underlying assets, such as stocks or commodities. This bundling of investments can save costs and makes these investments more accessible to more investors.
The Bitcoin (BTC) and Ethereum (ETH) ETFs are ‘spot’ ETFs, meaning there is actual Bitcoin or Ethereum in a vault on behalf of the fund, rather than derivatives such as futures and options.
Expectations and market reaction
On 20 May, two influential Bloomberg ETF experts tweeted that they raised the SEC’s chances of Ethereum ETF approval from 25% to 75%. The market reacted enthusiastically, as few expected the SEC to agree as early as May. Three days later, it turned out that they were right, but that did not mean that the Ethereum ETF could be bought immediately. The procedure for rolling out ETFs in the US requires several forms to be approved. This has now been achieved.
Price development and market strategy
Ethereum’s price initially rose sharply on May 20th, but has since fallen again, in line with the general correction in the crypto market. This leaves room for positive price movements in case of good news.
What will certainly happen is that capital will flow into the ETFs as soon as they become available. This is because, as with Bitcoin ETFs, the Ethereum ETFs will have to buy the underlying crypto. The question is how much capital this will be and what the effect will be. Ethereum is seen as an interesting option for diversification in the crypto portfolio, similar to a technology stock that is the foundation of several new financial applications (dApps).
Potential negative factors
One potential negative influence is capital outflows from the Grayscale ETF, which has high fund fees. If the Grayscale Ethereum fund shrinks significantly, it could have a negative impact on the share price as the underlying cryptocurrency will be sold. In addition, the ETFs lack a key feature of Ethereum: returns from ‘strike’. This may make the ETF less attractive to investors.
Conclusion: volatility ahead
In any case, we can expect volatility in the crypto market to continue for the foreseeable future. Derivatives trading has increased, making the price more sensitive to fluctuations. This presents opportunities to take advantage of strategies that work in both a rising and a falling market, such as participating in liquidity pools. This can be a good time not to watch the market every day, as the market has a lot of new information to process and therefore reacts more volatile.
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