Written by: Bitfinex
Translation: Blockchain in Vernacular
1. How did the market react after the launch of the Ethereum ETF?
The launch of the Ethereum ETF marks another important step in the integration of digital assets into traditional finance, giving investors direct exposure to Ether through familiar investment vehicles. The event has attracted significant attention from well-known financial institutions such as BlackRock and Fidelity, enhancing the legitimacy and accessibility of Ethereum. Although the initial trading volume is considerable, it is still low compared to the Bitcoin ETF, reflecting the market's different expectations for its impact on Ether prices and market dynamics. The approval of these ETFs indicates that regulators' attitudes towards cryptocurrencies may be changing, which is expected to pave the way for further innovation and wider acceptance in the financial industry.
2. The launch of the Ethereum ETF is slightly inferior to the debut of the Bitcoin ETF
On July 23, 2024, the launch of Ethereum ETFs marked an important milestone in the digital asset industry, providing institutional and retail investors with a new way to gain exposure to Ethereum blockchain native utility token Ether. Unlike previous Ethereum-related products that tracked futures contracts, these ETFs invest directly in spot Ether, more accurately reflecting the market value of the cryptocurrency. The launch of ETFs is seen as an important step in integrating digital assets into the traditional financial system, allowing investors to more easily gain exposure to Ethereum through familiar investment tools such as ETFs, which are listed on major trading platforms such as CBOE, Nasdaq and NYSE.
Ethereum ETFs are launched by several well-known financial institutions including BlackRock, Fidelity, Grayscale, etc., each of which offers unique features and fee structures to attract investors. While most funds have waived fees for a limited time, funds like Grayscale's Ethereum Mini Trust still offer extremely low fees after the promotional period. This competition among issuers reflects the trend of making digital asset investments more popular and economical. The entry of such well-known institutions into the Ethereum ETF market not only enhances the legitimacy of Ether as an asset, but also demonstrates the growing acceptance of cryptocurrency investment in traditional finance.
The impact of these ETFs on Ethereum prices and the broader market remains a topic of debate. While initial trading volume is considerable, it is significantly lower than the launch of the Bitcoin ETF at the beginning of the year. Analysts are divided on whether Ethereum ETFs can attract the same level of capital inflows as Bitcoin ETFs, with some expecting large capital inflows to push up Ether prices, while others remain cautious due to Ethereum's relatively small market capitalization and lack of a clear narrative like Bitcoin's "digital gold". However, the launch of these ETFs is expected to increase liquidity in the Ethereum market and potentially reduce volatility, providing a more stable environment for short-term traders and long-term investors.
The significance of the Ethereum ETF approval goes beyond market dynamics. This development could pave the way for further innovation in financial products related to other cryptocurrencies, such as the current discussion about the Solana ETF, or in the case of Ethereum, including the possible integration of staking functionality in the future. The SEC's approval of these ETFs also indicates a gradual shift in regulators' attitudes toward cryptocurrencies, potentially opening the door for other digital assets to gain similar recognition and legitimacy. As more investors gain exposure to Ether through regulated channels, the Ethereum blockchain's role as a core technology for decentralized finance (DeFi) and other applications may become more widely recognized, further solidifying its position in the digital asset ecosystem.
3. Overview of Ethereum ETF’s initial performance
The launch of the Ethereum ETF has been met with an optimistic but not overwhelming market response. While trading volumes and inflows were considerable, they fell short of the record set by the launch of the Bitcoin ETF earlier this year. On the first day of trading, the newly launched funds attracted a total of $2.2 billion in inflows, while the Bitcoin ETF saw inflows of $4.6 billion on its first day. The most active trading occurred in the Grayscale Ethereum Trust and BlackRock's iShares Ethereum Trust, showing solid interest but not causing a sensation. Cumulative trading volume for all Ethereum spot ETFs in the first week was $4.05 billion, compared to $11.82 billion for the Bitcoin ETF. On July 30, the Ethereum ETF saw its first net inflow as outflows from the Grayscale Ethereum Trust temporarily slowed.
Ethereum ETFs have seen steady inflows since launch, with data showing billions of dollars in the first week. However, the pace fell short of early expectations by some analysts, suggesting that initial enthusiasm may not be sustained at high levels. The lack of staking functionality for these ETFs is a significant issue, as staking provides a way to earn block rewards by participating in the network consensus process, thereby earning newly minted ether. The lack of staking returns in ETFs may lead some investors to purchase ether directly to take advantage of staking, thereby not only receiving staking rewards but also more direct control over their assets.
The lack of staking functionality in ETFs is a potential drawback for investors looking to maximize returns. Staking can provide additional yield, making it an attractive option for Ether holders, especially as liquidity staking allows Ether holders to stake their coins while still accessing their underlying locked liquidity value. Without this feature, these ETFs may appear less attractive to investors looking to benefit from the Ethereum staking ecosystem, although this limitation may change in the future. Therefore, while ETFs provide a convenient way for traditional investors to gain exposure to Ethereum, they may not fully meet the needs of more yield-seeking investors, who may drive them to hold Ether directly in their cryptocurrency wallets. Current investors who hold Ether directly have begun staking more ahead of the launch of the Ethereum ETF, with the amount of Ether staked recently reaching a new milestone of 28% of the total supply, or more than 33 million ETH.
Institutional investors' interest in Ethereum ETFs significantly exceeds that of retail investors. According to market analysis, institutional investors are more active in increasing their holdings of Ethereum, reflecting their bullish expectations on the potential of this type of cryptocurrency. This enthusiasm among institutions is very important because their large capital allocations have a greater impact on price fluctuations. In contrast, retail investors have shown cautious optimism and gradually increased their holdings, but at a slower pace than institutional investors.
Overall, the response to Ethereum ETFs from both retail and institutional investors shows growing interest. While they have failed to steal the limelight from Bitcoin ETFs, their launch marks an important step in mainstream acceptance of the broader digital asset market, potentially paving the way for further innovation, integration, and increased institutional participation in the future. As regulatory clarity improves and the market develops, Ethereum's unique attributes and applications may make it an increasingly attractive investment.
4. Can the Ethereum ETF have a greater impact than the Bitcoin ETF?
Ethereum's position as the second largest and most valuable digital asset is due to its active and innovative developer community, which has played a key role in advancing blockchain technology. The Ethereum community has not only popularized the Solidity smart contract language within the industry, but also created a set of developer tools that make Ethereum the easiest to use platform for building decentralized applications (DApps). The widespread use of these tools has contributed to a thriving ecosystem of Web3 projects, establishing Ethereum as the technological foundation of this new decentralized multi-chain digital ecosystem. Therefore, the launch of an Ethereum ETF could open the door to a wave of institutional interest and accelerate the integration of digital assets into traditional financial markets.
The Ethereum Virtual Machine (EVM) serves as the base layer for many blockchains in the Web3 space, including various DeFi platforms and other DApp ecosystems. It was recently reported that 90% of blockchain developers work on EVM-compatible blockchains. The compatibility of EVM with multiple Web3 blockchains makes it a key infrastructure component, promoting interoperability and innovation across industries. The ubiquity of EVM in Web3 makes it very simple to port smart contracts and DApps to other EVM-compatible chains. The launch of an Ethereum ETF could enhance the credibility of the Ethereum technology stack among other projects, encouraging institutions to explore investment opportunities not only in ETH, but also in other EVM-compatible assets. Increased institutional participation could lead to greater liquidity and stability, making the overall digital asset market more attractive and providing a better environment for developers and entrepreneurs to build on Ethereum or compatible Web3 platforms.
Ethereum’s role in the development and expansion of DeFi cannot be ignored. The platform’s smart contract capabilities enable complex financial instruments and services without intermediaries. As institutions become more familiar with Ethereum through ETF investments, they may also begin to explore the broader DeFi ecosystem more seriously. This may lead to the creation of new financial products and services that combine traditional finance with DeFi, potentially revolutionizing the way financial markets operate. The seamless flow of capital between these two areas may give rise to hybrid products with unique advantages that are suitable for both retail and institutional investors. In contrast, Bitcoin’s more limited smart contract capabilities may not be enough to inspire the same level of interest.
Ethereum’s influence extends beyond its own blockchain. Ethereum’s success has inspired 196 other blockchain projects that either directly integrate with Ethereum or use a similar technical framework. The launch of an Ethereum ETF could set an example for other digital assets, encouraging the development of ETFs based on alternative blockchains. This could pave the way for diversified Web3 financial products that leverage the unique capabilities of different blockchains within the ecosystem. As a result, we may see a more interconnected and complex digital asset market, with Ethereum at the center of this wave of change.
For these reasons, despite relatively weak initial performance, Ethereum ETFs have the potential to have a greater impact than Bitcoin ETFs in the long term. Ethereum's broad developer community, groundbreaking technologies such as EVM and Solidity, and its central role in the Web3 and DeFi ecosystems make it a critical infrastructure for the future of digital finance. As institutions gain exposure to Ethereum through these ETFs, they may become increasingly aware of its broader applications and innovation potential, driving greater integration and adoption in digital and traditional financial markets. This could have a more profound and lasting impact on the overall financial landscape, far beyond the initial scope of the Bitcoin ETF.
