The cryptocurrency market is abuzz with anticipation as asset managers gear up for the launch of new spot Ethereum ETFs, pending approval from the US Securities and Exchange Commission (SEC). This development could potentially reshape the landscape of the market and pave the way for substantial inflows into the regulated market within the first few months of trading.
Bitwise Chief Investment Officer (CIO) Matt Hougan has delved into the potential of these ETFs, offering insights into the projected market dynamics. His analysis is grounded in a comprehensive assessment of available data, eschewing the need for speculation when estimating the demand for spot Ethereum ETFs. Instead, Hougan leverages existing market data to support his forecast of $15 billion in net inflows during the initial 18-month period.
Hougan’s projections are informed by a comparison of the market capitalizations of Bitcoin (BTC) and Ethereum (ETH), the two leading cryptocurrencies. With Bitcoin’s market cap standing at $1,266 billion, representing 74% of the combined market, and Ethereum’s market cap at $432 billion, accounting for 26% of the combined market, Hougan expects investors to allocate to Bitcoin and Ethereum ETPs in proportion to their respective market capitalizations.
Considering that US investors currently have approximately $56 billion invested in spot Bitcoin ETPs, Hougan anticipates reaching $100 billion or more by the end of 2025 as these ETFs gain approval on major platforms like Morgan Stanley and Merrill Lynch. To achieve parity, spot Ethereum ETFs would need to attract $35 billion in assets, a milestone that Hougan estimates will take about 18 months to reach.
While Hougan’s estimates are grounded in sound reasoning, he acknowledges that actual inflows may vary due to a myriad of factors. For instance, the conversion of the Grayscale Ethereum Trust (ETHE) to an ETP on the launch day is expected to bring along $10 billion in assets, influencing the net inflows required to reach parity down to approximately $25 billion.
To bolster his estimates, Hougan looks to international ETF markets, particularly in Europe and Canada, where Bitcoin and Ethereum ETFs have already been established. The asset split between the two cryptocurrencies in these markets mirrors their market cap breakdowns, further validating Hougan’s earlier projections.
Hougan also considers the potential impact of the “carry trade” strategy on Bitcoin and Ethereum ETP markets. While a significant portion of US Bitcoin ETP flows are linked to this strategy, the Ethereum ETP carry trade is not as profitable for institutions. Thus, when sizing the Bitcoin market, Hougan excludes the $10 billion carry-trade-related AUM, leading to a revised estimate of $15 billion in net inflows for Ethereum ETPs.
The launch of new spot Ethereum ETFs holds immense potential for reshaping the cryptocurrency market and attracting significant investor interest. Hougan’s analysis provides valuable insights into the projected market dynamics and sets the stage for an exciting phase of growth and innovation in the industry.
