In a surprising turn of events, the U.S. Securities and Exchange Commission (SEC) gave its approval for eight spot Ethereum ETF funds on May 23, sparking a wave of optimism in the market. However, what was even more surprising was the lack of reaction from Ethereum’s price in response to this news. Despite the SEC’s announcement, Ethereum’s price only experienced a modest increase from $3,742 to $3,859 by May 28.
Leading up to the approval, Ethereum’s value had already risen by nearly one-third. However, concerns about Grayscale’s $11 billion Ethereum Trust (ETHE) began to emerge as indications surfaced that the SEC might reverse its decision. This became a significant factor in influencing price movement. While Grayscale had been witnessing substantial outflows from its Bitcoin Trust (GBTC) for several months, the markets now feared a potential repetition of this trend. Following the approval of spot Bitcoin ETF funds, GBTC experienced an outflow of $6.5 billion in the span of a month, which accounted for 23% of its assets under management (AUM).
According to a report by Kaiko Research on May 27, if history were to repeat itself, ETHE could see an average daily outflow of $110 million. Toni Mateos, co-founder of LAOS Network, a Layer-1 platform that enables asset creation on Ethereum Virtual Machine compatible chains, also predicts significant outflows from ETHE. Mateos drew parallels between GBTC and ETHE but pointed out a notable difference in their impact on their respective markets. When spot Bitcoin ETF funds were approved, GBTC held approximately $30 billion worth of Bitcoin, which accounted for 3.5% of Bitcoin’s market value. On the other hand, ETHE only holds $11 billion worth of Ethereum, representing 2.2% of the market value. Mateos emphasized this distinction, stating:
“While ETHE may experience outflows, its impact on the overall Ethereum market is not as substantial as GBTC’s impact on Bitcoin’s market. Therefore, we may not see the same level of volatility and risk.”
As always, investors should exercise caution and conduct their own research as cryptocurrencies are known for their high volatility and inherent risks.
Disclaimer: The information provided in this article should not be considered as investment advice. Investors are advised to be aware of the high volatility and risks associated with cryptocurrencies and should conduct thorough research before making any investment decisions.
