- The SEC has given in-principle approval of spot Ethereum ETFs.
- ETF issuers are awaiting the finalization of S1 filings that could take weeks.
- ETH has narrowed its return gap vs BTC in May as the market prices in ETF-driven inflows.
- Spot ETH ETFs could lead to decreased supply and increased staking yield, supporting ETH prices.
Ether is catching up with Bitcoin
The US SEC’s approval on 23 May of the listing of spot Ethereum ETFs (see link) marks another key milestone in broadening investor access to cryptocurrencies. ETF issuers have submitted their draft S-1 filings, but the timeline for SEC to provide comments and for the S-1s to be finalized is uncertain and may take weeks. ETH posted strong monthly gains in May, significantly narrowing its performance gap against Bitcoin over the past 1-year period: ETH (+101%) vs BTC (+148%). The latter has benefitted from both ETF inflows (USD14bn since Jan) and its halving event earlier.
Will the positive impact mirror that of BTC ETF launch? ETH has seen relatively lower investor interest than BTC. Notably, the Grayscale Ethereum Trust only accounted for 2.5% of total ETH market cap as of end-2023, compared to 3.1% for its BTC counterpart. That said, the ETF launch could bring additional positives to ETH prices: (1) ETFs could boost ETH trading volume, thereby decreasing ETH supply due to its burning mechanism, (2) the supply of ETH available for staking will fall (ETFs are not allowed to stake their ETH by the SEC), lifting staking yields and ETH attractiveness, and (3) the proof-of-stake mechanism for ETH could appeal to new investors concerned about the environmental sustainability of mining.
ETH’s positive sentiment has also spilled over to BTC, which is expected given their tight correlations. After seeing c.USD1bn of net outflows from BTC ETFs 12 days after the halving event, inflows returned to a positive USD2.6bn for the rest of May as markets anticipate ETH ETF approvals by the SEC.
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