ETFs
Ether Traders Hold Breath as Ether ETF Fever Happens, Hoping for Record Rally
(Reuters) — Ether (ETH-USD) may well be about to experience its moment of glory.
The world’s second-largest cryptocurrency has been in the wings this year as its big brother bitcoin hit all-time highs thanks to new U.S. exchange-traded funds designed to track its price.
But with ether’s companion ETFs set to hit the market soon, some market participants are predicting that a price rally beyond its November 2021 all-time high of $4,867.60 could be on the cards.
“Consider the fact that Ethereum has about half the level of liquidity as spot,” said Thomas Perfumo, chief strategy officer at cryptocurrency exchange Kraken, referring to trading Ether on exchanges versus Bitcoin. “Half the amount of liquidity means you need a smaller amount of absolute dollars entering the market to have the same impact on Ethereum prices.”
Cryptocurrency graveyards are full of investors who thought they could reliably predict these risky and volatile markets.
The likely token sale of now-defunct Japanese exchange Mt. Gox has roiled the market in recent days, hitting bitcoin and ether. Other factors, such as the timing of U.S. Federal Reserve interest rate cuts and the upcoming presidential election, could also hurt cryptocurrencies.
“Market participants should watch for a return of volatility in traditional markets and cryptocurrencies,” Jag Kooner, head of derivatives at Bitfinex, a cryptocurrency exchange, said in a research note. “Regulatory developments and macroeconomic policies will play a crucial role in market dynamics.”
Trapped and locked
Bitcoin (BTC-USD) hit new highs in March, reaching $73,803.25 two months after the launch of the first Bitcoin spot ETFs, up from $45,947 before the launch. In contrast, ether has remained far from its all-time high, trading at just $4,093.7 in March.
That could change when ether ETFs hit the market in the coming weeks, experts say, noting that ether supply is limited and inflows into ETFs could have a magnified effect on the token’s price relative to bitcoin.
The new ether ETFs aren’t expected to generate the same investor enthusiasm as bitcoin spot ETFs, which attracted nearly $38 billion in assets as of the end of June, according to Morningstar Direct.
A study by crypto asset manager Grayscale Investments, which is set to convert its existing ether fund into an ETF, estimated that spot ether ETFs could meet 25% to 30% of bitcoin fund demand.
But by reducing the market cap — given that ether’s market cap is about a third of bitcoin’s — there could be a comparable impact on the price per dollar of inflows into ether ETFs, said Zach Pandl, managing director of research at crypto asset manager Grayscale Investments.
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“I think it’s similar to what we were seeing for bitcoin earlier this year, where we think there’s going to be a substantial amount of new demand for the product and that’s going to interact with a more limited supply than I think is commonly understood,” he said.
Unlike bitcoin, ether can be staked, or locked up for a certain period of time, in exchange for a yield. Just under 30% of ether’s supply is staked, Pandl estimates, while about 10% is locked up in smart contracts. That reduces the supply of ether available for purchase for new ETFs, which could drive up the price, he said.
“The reason Bitcoin ETFs impacted the price is because there was more demand for these ETFs than there was new supply of bitcoin,” said Matt Hougan, chief investment officer at Bitwise. [ether]The supply situation is even worse.”
Predictions about the impact the ETF could have on the token’s price vary widely, with global bank Standard Chartered estimating that ether could hit $8,000 by the end of the year. VanEck, which is set to launch a spot ether ETF, raised its price target for ether to $22,000 by 2030 in May.
Still, the impact of the new ETFs may already be factored into Ether’s price, some market watchers warn. While still below its all-time high, Ether has nonetheless gained more than 29% since the start of the year.
“For bitcoin and ethereum, they are more valued than they were when bitcoin products launched earlier this year. This could argue for a slightly weaker effect,” Grayscale’s Pandl said.
(Reporting by Hannah Lang in New York; Editing by Pravin Char)