Matt Hougan believes that the spot Ethereum ETP will attract $15 billion in the first 18 months of its launch.
Written by Matt Hougan, Chief Investment Officer at Bitwise
Compiled by Luffy, Foresight News
Everyone wants to know how much money the spot Ethereum ETP will attract. My answer is: $15 billion in the first 18 months.
Author's Note: While "ETF" is the term most people use to describe spot Bitcoin and spot Ethereum funds, they are technically more appropriately considered ETPs (Exchange Traded Products). This is because regulators distinguish between 1933 Act products (ETPs) and 1940 Act products (ETFs), which have different rules and investor protections.
This isn’t just speculation, it’s backed by data. Here’s how I came to this conclusion.
Starting point: relative market value
A good starting point for estimating capital inflows is to look at the relative size of BTC and ETH. After all, in the absence of other information, I would expect investors to allocate Bitcoin and Ethereum ETPs roughly in proportion to their market capitalizations.
The following is a comparison of the current market capitalization of the two:
- Bitcoin: $1,266 billion (74%)
- Ethereum: $432 billion (26%)
US investors have currently invested $56 billion in spot Bitcoin ETPs. I estimate that this number will reach $100 billion or more by the end of 2025 as these ETPs mature and platforms such as Morgan Stanley and Merrill Lynch enter the market.
Using this $100 billion figure as a reference, the spot Ethereum ETP would need to attract $35 billion in assets to match the size of Bitcoin, a process I estimate would take approximately 18 months.
Does this mean we should expect $35 billion in inflows when the Ethereum ETP launches? No. First, the Grayscale Ethereum Trust (NYSE: ETHE) is expected to convert into an ETP on launch day, which brings in $10 billion in assets.
After deducting this amount, we should still have $25 billion of inflows.
Is this estimate reasonable? Let's look at the data from abroad.
International ETP Market Experience
Although foreign ETP markets are not exactly the same as the U.S. ETP market, they have certain reference value.
For example, Europe and Canada have already launched Bitcoin and Ethereum ETPs. If you aggregate all available funds in each market, here’s how the AUM (Assets Under Management) for the two assets compare:
Europe
- Bitcoin ETP: €4,601 (78%)
- Ethereum ETP: €1,305 (22%)
Canada
- Bitcoin ETP: $4,942 CAD (77%)
- Ethereum ETP: $1,475 CAD (23%)
It’s worth noting that the allocation ratios of Bitcoin and Ethereum ETPs in the European and Canadian markets are almost exactly the same, and are largely consistent with the market capitalization distribution I highlighted above. This suggests that my previous estimates were within reasonable range.
You might ask: Why are Ethereum ETPs performing slightly below their market cap weight? They currently account for 22-23% of total AUM, while their market cap weight is 26%.
I can imagine various reasons, including that the Bitcoin ETP entered these markets first (as it did in the US). Some investors may have bought the Bitcoin ETP but not followed up with the Ethereum ETP, thinking they had crypto exposure. I suspect this would happen in the US as well.
Therefore, we lower our estimates, assuming Ethereum ETPs capture only 22% of the market, on par with Canada. This would reduce our estimate of net inflows from $25 billion to $18 billion, excluding the Grayscale Trust’s assets.
Other factors to consider
There is another important factor to consider: the “carry trade” may work differently in the Bitcoin and Ethereum ETP markets.
A large portion of US Bitcoin ETP flows is related to arbitrage trades. An arbitrage trade involves buying a spot Bitcoin ETP and then selling a Bitcoin futures contract against that position. The profit from this trade comes from the fact that the Bitcoin futures contract is currently trading at a premium to the spot price. The profitability of arbitrage trades varies, but for most of the time since the launch of Bitcoin ETPs, investors have been able to earn about 10% per year from the trade with limited risk. I estimate that about $10 billion of Bitcoin ETP AUM is currently related to arbitrage trades.
I don’t think the same will happen with Ethereum. Ethereum ETP arbitrage trading is not currently profitable for institutions (partly because US Ethereum ETPs do not participate in asset staking). For this reason, we need to exclude $10 billion of arbitrage-related AUM when assessing the size of the Bitcoin market.
If this is done, the denominator of Bitcoin ETPs will drop to $90 billion in AUM. Therefore, we estimate that net inflows to Ethereum ETPs will be in the $15-18 billion range.
in conclusion
There are still many areas that can be adjusted in this model.
For example, you could argue that Ethereum ETPs will underperform my expectations because they don’t stake the asset, which would reduce demand. I disagree, staking income is just a rounding error on Ethereum’s average annual return, and I think ETP investors will be happy as long as there is an opportunity to invest.
On the other hand, my estimates do not take into account the multiple tailwinds behind Ethereum’s growth, including the rise of stablecoins, increasing regulatory clarity, and the subsequent impact of the Dencun upgrade. Strong bullish expectations for ETH as an asset will significantly increase ETP demand.
Still, I think $15 billion in inflows over the next 18 months is a good start. My gut tells me it will be better. ETH is a compelling asset that powers the world’s most versatile blockchain. Even $15 billion in net new demand would have a huge impact on the Ethereum market.
