Bitcoin is on the verge of hitting $66,500, coinciding with the final filings for the Ethereum ETF. The first day of trading for ETH ETFs begins tomorrow, and initial volume data will be available shortly. Investors are questioning whether a sell-the-news event, similar to the BTC ETF scenario, will occur. Insights from the Kaiko report shed light on potential market movements.
Will ETH ETFs Affect Prices?
For the BTC ETF, analysts did not anticipate a sell-the-news event due to expectations of continuous positive price impact from long-term inflows. Despite a brief dip, net inflows have remained strong, bolstering BTC via the ETF channel. A similar outcome for ETH is plausible. The Kaiko report elaborates on this topic.
Grayscale plans to convert its ETHE trust into a spot ETF, seeding it with $1 billion from the existing fund and initiating a mini trust. A 2.5% fee for ETHE suggests we may witness an initial rapid sales scenario, akin to the GBTC ETF.
Why Is ETHE Risky?
A key distinction between a trust and an ETF is that ETF unit prices align one-to-one with the net asset value. However, shares in a trust often do not match the net asset value, historically trading at a negative premium, as seen with Grayscale’s GBTC and ETHE trusts. The Kaiko report notes:
- The ETHE fee of 2.5% could trigger fund exits, mirroring GBTC’s performance post-spot BTC ETF conversion.
- ETHE’s discount to net asset value has recently narrowed, indicating investor interest in buying below nominal value and profiting upon conversion.
- Initial demand and volume figures for ETH ETFs will be crucial for predicting future price movements and potential altcoin rallies.
Key Inferences
Will Cai from Kaiko commented on the insufficient demand for futures-based ETH ETFs launched in the US late last year, highlighting that all eyes are now on the spot ETFs, with hopes for rapid asset accumulation. Although a comprehensive demand picture will take months to develop, ETH prices might react to early inflow data.
Strong demand and volumes could spark an altcoin rally led by ETH, overshadowing the futures’ failure. However, a significant number of investors are poised to sell ETHE for attractive profits, potentially causing net outflows in spot ETH ETFs and negatively impacting the market. Alternatively, the opposite could occur, given widespread anticipation of this scenario.