The US Securities and Exchange Commission (SEC) has given its final tick of approval for spot Ethereum ETFs, marking a “noteworthy milestone” for the world’s second largest cryptocurrency.
In May, the SEC had approved the first stage of 19b-4 applications, which laid the groundwork for these ETFs to be listed.
This week, just over two months later, it has approved the latest S-1 registration statements of seven fund managers – 21Shares, Bitwise Asset Management, BlackRock, Invesco, Franklin Templeton, Fidelity Investments, and VanEck – which could spur trading of these ETFs as early as this week.
Speaking to InvestorDaily, BTC Markets CEO Caroline Bowler welcomed the announcement, noting that it underscores the growing acceptance of digital assets within the regulatory framework.
“The approval of Ethereum ETFs by the SEC signifies a major advancement for the asset class,” Bowler said.
“For Australian crypto investors, it highlights the increasing mainstream acceptance and institutional interest in Ethereum. This development may inspire greater confidence and participation in the crypto market, potentially influencing regulatory perspectives and market dynamics locally.”
She added: “It must spark the question of when we will see [something] similar on the ASX.”
Bowler observed the approval is also likely to serve as a catalyst for further institutional investment, which can benefit from an “accessible regulated investment vehicle” of an ETF wrapper.
“This could lead to significant capital inflows, enhancing Ethereum’s market position and driving broader adoption,” she said.
Earlier this year, the SEC approved its first cryptocurrency ETFs when it greenlit bitcoin ETFs in January, a move widely considered to have had a measurable impact on its prices and capital flows.
As at 23 July, bitcoin prices are up more than 50 per cent for the year to date, standing at more than US$66,700.
Given this trend in bitcoin, Bowler said the latest SEC approval is likely to generate positive sentiment and increased demand for Ethereum and can go on to affect prices.
However, she reiterated, it remains challenging to predict exact price movements.
“Analysts suggest that this could drive the price of ether upwards, with Wintermute, an algorithmic trading firm, predicting potential gains of up to 24 per cent over the next year,” Bowler said.
Global X investment strategist Billy Leung agreed that historical trends could point to potentially double-digit gains for Ethereum off the back of enhanced ETF flows.
He elaborated that bitcoin ETF inflows have totalled approximately US$16.4 billion year to date, with every US$1 billion in ETF inflows resulting in a roughly 4 per cent price increase.
“We do not provide specific price targets. However, our analysis of US bitcoin ETF flows indicates a strong relationship between ETF inflows and price movements,” Leung said.
Approximately 30 to 40 per cent of bitcoin’s price movement can be attributed to ETF flows, he said.
Applying a similar model to Ethereum and considering its market cap is roughly 33 per cent of bitcoin’s, he estimated similar proportional ETF inflows “could potentially increase Ethereum’s price by approximately 20 per cent over a similar time frame”.
Benjamin Celermajer, director at Magnet Capital, highlighted that trading of Ethereum ETFs will bring forth a new source of demand for the cryptocurrency that was historically unavailable.
“We’ve seen how positive this has been for the price of bitcoin and I would expect it will be equally as positive for Ethereum in the short, mid and long term,” he told InvestorDaily, pointing out that ETFs are “typically good sustained long-term sources of patient capital”.
“For the first time, Ethereum will be an investable asset for the trillions of dollars managed by wealth advisers and asset allocators.
“Whilst anything can happen in the short term, turning this demand faucet on will create very positive price pressure for ether, Ethereum’s native asset, over the midterm.”
The broader crypto industry, too, is likely to reap the benefits of the SEC’s latest decision as it casts a larger spotlight for awareness, education, and participation from investors, he offered.
Cause for caution
However, while potential price gains could prove alluring for investors, the volatility of cryptocurrency as an asset class warrants consideration of its role in an investment portfolio, according to Betashares’ head of digital assets, Justin Arzadon.
Conceding the SEC’s latest decision is a “noteworthy milestone”, he reiterated it remains “early days” for the adoption of digital assets by mainstream finance.
“While digital assets are slowly playing a more meaningful role in traditional finance, they will continue to be a very volatile asset class for the foreseeable future,” Arzadon said.
In light of this, he said investors would be better served “by building a robust portfolio using Australian and international equities, bonds, and other asset classes as a core”.
Alongside this, investors might then wish to consider a very small allocation to digital assets, he said.
