Ethereum ETFs Could See Underwhelming Demand, Two Research Firms Predict

Trading firm Wintermute expects inflows to be lower than consensus predictions while research firm Kaiko says data suggests “less conviction” regarding the launch.

Several exchange-traded funds (ETFs) that track ether, the native cryptocurrency of the second-largest blockchain, are set to begin trading in the U.S. on Tuesday, following final approval from regulators.

The launches, which were largely anticipated by crypto enthusiasts, come about six months after bitcoin ETFs started trading in the country. However, the ether ETF debuts are expected to be relatively muted compared with those launches.

Trading firm Wintermute said in a research report that it expects ether ETFs to see inflows of no more than $4 billion over the next 12 months. That's lower than the $4.5 billion to $6.5 billion expected by most analysts, and the latter number is already about 62% less than the $17 billion that bitcoin ETFs have collected so far.

Those inflows are expected to help ether's price rise by as much as 24% over the next year, Wintermute said.

The approvals, which were announced by the U.S. Securities and Exchange Commission (SEC) on Monday evening, will allow issuers to begin offering their ether ETFs, which could start trading as early as Tuesday. The funds are being offered by several major crypto and financial firms, including 21Shares, BlackRock, Bitwise, Fidelity, Franklin Templeton, Grayscale, Invesco and VanEck.

The SEC declined to allow the funds to stake the ether they own, which would have generated income that could have been passed on to investors. That "reduces the competitiveness of ETH ETFs compared to direct holdings, where investors can still benefit from staking,” Wintermute said in its report.

Research firm Kaiko also predicted a muted debut for the ether ETFs, based on previous launches that were focused on the cryptocurrency.

"The launch of the futures based ETH ETFs in the U.S. late last year was met with underwhelming demand,” Will Cai, head of indices at Kaiko, said in a report. “All eyes are on the spot ETFs' launch with high hopes on quick asset accumulation."

While ether's price is expected to be sensitive to the rate of inflows in the early days of trading, over the longer term, the firm said that "could indicate less conviction around the ETH launch, as traders are willing to pay higher premiums to hedge bets."

Kaiko's data showed that ether implied volatility rose sharply over the weekend, with contracts expiring soonest (July 26) increasing to 0.67 from 0.59.

Issuers disclosed their expected management fees in filings last week, with Grayscale's Ethereum Trust planning to charge investors 2.5% while most other managers are keeping fees lower in the 0.15% to 0.25% range.

UPDATE (July 22, 2024, 21:19 UTC): Updates to note that the ETFs got final approval and can begin trading Tuesday.

Helene Braunstein, New York, Markets Reporter at CoinDesk, covered Wall Street, the rise of the spot bitcoin ETFs and crypto exchanges. She also co-hosted CoinDesk's Markets Daily show. A graduate of New York University's business and economic reporting program, Helene appeared on CBS News, Nasdaq TradeTalks and Yahoo Finance. She also held BTC and ETH.

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