ETFs
Ether ETF will be a “monstrous success”, but not like Bitcoin
While the Securities and Exchange Commission (SEC) has yet to allow fund managers to issue spot ether exchange-traded funds (ETFs), the regulator gave the green light on the New York Stock Exchange (^NYA) and the Nasdaq (^IXIC) to start listing funds. James Seyffart, research analyst at Bloomberg Intelligence ETF, joins Morning Brief to discuss the significance of this move for Ethereum (ETH-USD) and other altcoins.
Don’t get your hopes up, Seyffart says: altcoins won’t get a chance at an exchange-traded fund anytime soon. The analyst explains that an ether ETF can exist today because it has a federally regulated futures market, like bitcoin (BTC-USD). These markets allow the SEC to monitor fraud and manipulation.
While it seems unlikely that an ether ETF will pass, “the political winds are turning quickly,” Seyffart notes, pointing to pro-crypto legislation that is passing Congress with support from both Democrats and Republicans. Seyffart adds that demand for Ethereum is 30% of that for Bitcoin, although an ether ETF will still be a “monstrous success.” The analyst explains that Ethereum loses its usefulness when placed in an ETF.
For more expert insights and the latest market action, click here to watch this full episode of Morning Brief.
This article was written by Gabriel Roy.
Video transcription
As we bring in James Seaford, who is the Bloomberg Intelligence ETF research analyst.
Nice to have you here with us and thanks for coming this morning.
I mean, how important is this for Ethereum?
And how many other alternative plays could look at this and say, hey, we, we, we might have a chance.
Yeah, thanks for having me, Brad.
Um, I don’t think the others will be so lucky in the short term.
Um, look, the Bitcoin ETF S was approved because we have a federally regulated CME Bitcoin futures market.
And basically the SEC said we’re not going to approve anything unless we have a market that we can monitor and we can make sure there’s no fraud or manipulation.
So that’s basically what the DC circuit court that she just talked about allowed the approval of the Bitcoin ETF.
Ethereum is the only other digital app with a federally regulated futures market that trades with enough size and frequency that, theoretically, the SEC could look for some kind of fraud and manipulation that doesn’t exist really elsewhere and which indicates that things are changing very quickly. .
The political tide has turned.
I mean, just a week ago we didn’t think this was going to happen, but everything has really changed.
The story continues
On Monday, there were 180 in total.
As for us from DC.
And the SEC on this, we think they were probably going to deny these things until the end of last week.
James, what do you think, what’s changed?
And secondly, what do you think the demand will then look like for these three potential ETFs?
Yeah, I mean, what’s changed if the political winds have changed?
I mean, if you just look at what’s happened in Washington DC, it’s almost insane to look at what’s happened over the last two weeks, right?
Trump said he was pro crypto.
You had the SAB 121 votes in Congress, which we don’t need to get the weeds there.
But it’s also pro crypto legislation uh and the Senate had a group of Democrats including uh Majority Leader Chuck Schumer on the crypto side uh vote and you had the same similar things with Fit 21 which is a other crypto.
Bill.
Nancy Pelosi sided with 71 different Democrats.
It seemed like a partisan decision, didn’t it?
It seemed to be Democrats versus Republicans.
Republicans were more pro, some Democrats were still pro crypto, but for the most part everything changed the minute Trump basically said he was pro crypto.
And I think there’s been a lot that’s changed in Washington, D.C. over the last few weeks with respect to the ban.
Um, if you look at Ethereum versus Bitcoin, just the asset, Ethereum’s market cap is about 30% of Bitcoin’s.
So if you take that into account, you translate that into an ETF and you look at other ETFs around the world.
So the US is not the first to have an Ethereum and Bitcoin ETF, the demand will be much lower than what we saw for Bitcoin.
So we’ve seen about $13 billion in flows into the Bitcoin ETF since its launch on a net basis.
Um, so if you factor in that 30%, I think there’s going to be even less than that 30-30% interest.
First, these things will not allow staking, which is equivalent to the native yield you would get on Ethereum.
You lose a lot more utility by simply putting Ethereum into an ETF and not allowing it to be used.
Demand will therefore probably be, in our opinion, a little lower than this 30% ratio.
So it depends on who you talk to, but we’re still hoping to invest billions of dollars here.
So it should be a monster success if and when we get, well, not if when we get those final approvals from the SEC for issuers to actually launch these things, what’s the timeline on that?
We know that out there, I mean, whoever tells you that, they know it, they’re lying or they’re high and dry at this point, as far as I’m concerned.
Um, there’s a huge gap there, right?
So it can take up to five months, there are examples where it takes five months before this is adopted.
Um, I think the Bitcoin ETF is probably the most apt analogy and it took about three months, a lot of the language and concerns and issues that had to be resolved between the SEC on these risk disclosures, what these offering documents are. must be disclosed to those who invest in them.
Much of the problem has been solved with futures, ETFs and ETFs.
So the Bitcoin ETF took 90 days, I think it will probably be less than 90 days.
I think it could take weeks, but it could also take months.
So, since we don’t really know, my gut tells me that if they went and really did a 180 like we think they did at the end of last week, that means it took them three days to get these 19 before approvals after usually taking 240 working days to obtain them. actually do this stuff, they can speed things up.
So I think it will be measured in weeks, if not several weeks, most likely at least, but it could take months.
There’s no way to know.
So now with cryptocurrencies and, and especially the majors Bitcoin and Ethereum, having their ETF asset class moment, the use value proposition or, or use case, is it more important ?
Um, I think that’s the case because what matters is what’s actually happening in the ecosystem of these assets.
RIGHT.
It’s the ETF that’s nice.
They’re good, great for people who want financial exposure, especially if they’re looking to do things like a tax advantage account, like an IRA or if they have money on a brokerage platform and if they want to ensure exposure.
What that’s going to provide is financial exposure to asset investing if you want another one, if there are other reasons why you would want to access these things, which is out there, uh, there There are a lot of people doing things with Ethereum in decentralized finance. on these different decentralized platforms.
Um It’s the same with Bitcoin, there is a reserve of sovereign wealth.
You can kind of do whatever you want with it.
You can take custody of your own assets yourself, which you can’t really do with much else.
All these things still exist.
But it takes these assets out of the defi world and onto traditional financial rails in a very unique way.
So there’s this thing that’s happening right now with a lot of these asset managers, it’s going both direct, right.
They take these native digital assets and put them in these packaging of the traditional financial world.
But there are also examples where they take traditional financial assets, like money market funds, and wrap them, tokenize them, and place them in the decentralized finance world.
A lot of these asset managers and these banks are probably going to play a lot at that intersection between those two things.
Um And it’s going to be fascinating to watch over the coming years.
Really great context and insight that James broke down.
Who is the Bloomberg Intelligence ETF research analyst, James.
Thank you very much for taking the time.
Thank you for.