The recent approval of spot Ethereum exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) has led to a surge in cryptocurrency prices. According to JPMorgan, the Grayscale Ethereum Trust (ETHE) has seen its price to Net Asset Value (NAV) gap nearly close, although further fluctuations are expected if the launch of spot Ethereum ETFs in the U.S. faces delays.
While the SEC has approved the 19b-4 forms for these ETFs, the S-1 filings are still under review. Notably, the approved ETFs exclude staking features, suggesting that the SEC may classify Ethereum as a commodity, provided staking is not involved.
JPMorgan analysts predict that the SEC is unlikely to approve ETFs for other tokens considered more centralized and classified as securities, unless U.S. policymakers enact legislation to treat most cryptocurrencies as commodities—a scenario seen as unlikely before the upcoming U.S. election.
JPMorgan raised questions about the level of investor interest in the newly approved spot Ethereum ETFs. The bank anticipates that demand for these ETFs will be significantly lower than the demand seen for spot Bitcoin ETFs. Factors contributing to this include Bitcoin‘s first-mover advantage, the absence of a demand catalyst akin to Bitcoin’s halving, the initial exclusion of staking in Ethereum ETFs, Ethereum’s distinct value proposition as an application token, lower assets under management (AUM) and liquidity, and the smaller market size of Ethereum compared to Bitcoin.
The bank estimates that the spot Ethereum ETFs could attract modest net inflows ranging from $1 billion to $3 billion for the remainder of the year. If staking is included in the future, possibly through legislative changes, inflows could increase to between $3 billion and $6 billion.
JPMorgan also noted that the initial market reaction to the launch of spot Ethereum ETFs might be negative. Drawing parallels to the post-launch response of spot Bitcoin ETFs in January of the previous year, the firm expects around $1 billion to exit the Grayscale Ethereum Trust. Speculative investors, who anticipated a conversion to an ETF, might take profits, potentially leading to a short-term decline in Ethereum prices following the launch of the spot ETFs.
Overall, while the approval of spot Ethereum ETFs is a significant development for the crypto market, JPMorgan advises cautious optimism, highlighting both the potential for modest inflows and the risk of initial market volatility.
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