The cryptocurrency market is abuzz with anticipation as asset managers gear up for the potential launch of new spot Ethereum ETFs, pending approval from the US Securities and Exchange Commission (SEC). According to Bitwise Chief Investment Officer (CIO) Matt Hougan, these ETFs could usher in a wave of substantial inflows into the regulated market within the first few months of trading.
Hougan’s predictions are not based on mere speculation, but on a detailed analysis of available data. He points to the existing market trends to support his forecast of $15 billion in net inflows during the initial 18-month period. By comparing the market capitalizations of Bitcoin (BTC) and Ethereum (ETH), Hougan expects investors to allocate to Bitcoin and Ethereum exchange-traded products (ETPs) in proportion to their respective market caps.
With Bitcoin currently dominating the market with a $1,266 billion market cap, representing 74% of the combined market, and Ethereum following closely behind with a $432 billion market cap, accounting for 26% of the market, the potential for significant growth in Ethereum ETPs is evident. Hougan projects that as more ETFs gain approval on popular platforms like Morgan Stanley and Merrill Lynch, the market could see upwards of $100 billion in total assets by the end of 2025.
While Hougan’s estimates are compelling, he acknowledges that actual inflows may vary due to several factors. For example, the conversion of the Grayscale Ethereum Trust (ETHE) to an ETP on launch day is expected to bring in around $10 billion in assets. Taking this into account, the estimated net inflows required for parity could be closer to $25 billion, rather than the initial projection of $35 billion.
To validate his projections, Hougan looks to international ETF markets, particularly in Europe and Canada, where Bitcoin and Ethereum ETFs are already on offer. The split in assets between the two cryptocurrencies in these markets mirrors the market cap breakdowns, further strengthening his earlier estimates. Bitcoin ETPs make up approximately 78% of the total Assets Under Management (AUM), while Ethereum ETPs represent around 22%.
Hougan also considers the influence of the “carry trade” strategy on Bitcoin and Ethereum ETP markets. While a significant portion of US Bitcoin ETP flows are linked to this strategy, the Ethereum ETP carry trade is deemed unprofitable for institutions. As a result, Hougan adjusts his estimates by removing the $10 billion carry trade-related AUM when sizing the Bitcoin market, leading to a revised projection of $15 billion in net inflows for Ethereum ETPs.
The impending launch of spot Ethereum ETFs could mark a significant turning point for the cryptocurrency market, potentially attracting billions of dollars in assets and reshaping the landscape for investors and asset managers alike. As regulatory approval looms on the horizon, all eyes are on the SEC’s decision and the future implications for the burgeoning world of digital assets.
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