Ether Spot ETF: How It Can Transform Crypto Market Following US SEC Approval

Bitcoin and Ethereum ETFs are set to address the challenges of securing and managing crypto assets through custody solutions.

By Mridul Gupta 

2024 has witnessed a significant surge in spot crypto ETFs, capturing the market’s attention. The US Securities and Exchange Commission (SEC) has approved multiple spot exchange-traded fund (ETF) applications from well-recognised financial institutions like BlackRock, Grayscale, and Fidelity. The approval of spot Bitcoin ETFs earlier this year ignited a wave of interest and investment, propelling Bitcoin prices to a record high of $74,000. Building on this momentum, the introduction of Ethereum ETFs has further reinforced the market's enthusiasm.

Ether, the world's second-largest crypto and the powerhouse behind the Ethereum blockchain has made a significant impact. On the first day of trading, the total volume for the new ETFs surpassed $1.08 billion, according to Bloomberg Intelligence.

Understanding ETFs & Their Impact On Broader Investor Access

Many are familiar with Gold ETFs, which offer a way to invest in gold without the need to physically own or store it. These funds keep gold bars in secure vaults for safekeeping. Investors can then buy and sell shares of these ETFs on regular stock exchanges. It enables investors to buy and hold units of gold electronically through a demat account, much like holding any stock on the stock exchanges' cash segment. These units can be traded anytime during market hours, just like stocks, and all at a very low transaction cost.

Similarly, Bitcoin and Ethereum ETFs are set to address the challenges of securing and managing crypto assets through custody solutions. This method will provide institutional investors with the security and confidence needed to invest in crypto, as their assets will be safely held. Spot ETFs are designed to simplify access for retail investors, allowing them to invest in Bitcoin and Ethereum through their regular brokerage accounts, thereby broadening exposure and making it easier to engage with crypto assets.

How Will ETH Price Be Impacted?

The approval of spot Ether ETFs is expected to drive a significant increase in ETH prices. The introduction of Bitcoin ETFs in January led to a substantial surge in BTC prices, pushing them to new all-time highs with a rapid 58 per cent increase within just two months. Many analysts believe that the launch of Ether ETFs could have a similar effect on ETH prices, with some predicting it could reach as high as $6,500.

 Investors should remember that the prices of crypto assets like Bitcoin and Ether should be viewed from a long-term perspective.

Bitcoin Is 'Digital Gold'. What About ETH?

Crypto assets are as strong as their use cases. Traditional investors are increasingly interested in Ethereum due to its smart contract capabilities and the extensive range of decentralised applications (dApps) within its ecosystem.

Ethereum hosts more than 4,000 dApps and millions of smart contracts. With the increasing adoption of Layer 2 solutions, Ethereum's utility and adoption are projected to expand substantially in the years ahead. 

Understanding Staking & Impact Of ETH ETFs

Staking involves locking up crypto to support network operations in return for rewards.  Approximately 27 per cent of the total Ethereum supply currently is staked. The introduction of spot ETH ETFs could impact staking dynamics by potentially increasing the attractiveness of staking due to rising ether prices, which would enhance the value of staking rewards. 

The dynamics of staking play a crucial role as they influence the amount of ETH circulating in the market. As ETH prices rise and staking rewards become more attractive, more holders may choose to stake their ETH. This action would decrease the available supply in circulation, potentially leading to an increase in the ETH price.

Will ETF Approval Impact Indian Investors?

Definitely,  as crypto is borderless, the SEC's ETF approval will impact overall market sentiment. The immediate focus might be on Bitcoin or Ether’s price, but what is to be noted these ETFs will further amplify positive market sentiment and are likely to trigger heightened trading activity.  This surge in trading volume is likely to extend positive momentum beyond Bitcoin and Ether to other tokens and signal a broader resurgence in the overall crypto market. 

While Bitcoin and Ethereum ETFs target the US audience, this development reflects a growing acceptance of crypto globally. Indian investors may not directly access these US financial instruments, but the global momentum in ETFs indicates positive growth for the overall crypto industry.

What’s Next In The Sector Of ETFs? 

The anticipated introduction of Solana ETFs highlights the potential for even more diverse and appealing crypto exchange-traded products.

Solana, the fifth-largest crypto by market cap, has solidified its position alongside Bitcoin and Ethereum as a major player in the crypto space.  Solana’s addition could drive substantial interest and investment. The combined BTC-ETH-SOL ETF aims to offer diversified exposure, reducing risk for investors while increasing the appeal of crypto investments by providing a broader range of assets within a single product.

(The author is a Founding Partner at CoinDCX)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.