The recent approval of spot Ether exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission has raised several concerns regarding potential market dynamics. According to a report by Kaiko, if Grayscale’s upcoming spot Ether ETF follows the trend set by the company’s Bitcoin Trust, it could potentially see an average outflow of $110 million per day. This projection is based on the experience of Grayscale’s Bitcoin Trust, which transitioned to an ETF on January 11 and saw a 23% outflow of its assets under management (AUM) in the first month, totaling $6.5 billion.
Grayscale’s Ether Trust (ETHE) currently has an AUM of $11 billion, and if it experiences outflows at a similar level as GBTC, it could result in significant daily outflows. This could represent around 30% of ETH’s average daily volume on Coinbase. Over the past three months, ETHE has traded at a discount of up to 26% to its net asset value (NAV). Kaiko researchers suggest that as ETHE transitions to a spot ETF, it is likely to see outflows or redemptions as this discount narrows.
The approval of spot Ether ETFs by the SEC signifies a major shift in how the agency views the underlying asset. Will Cai, Head of Indices at Kaiko, noted that the approval implies that Ether (without staking) is considered a commodity rather than a security. This has positive implications for regulating similar tokens in the U.S., particularly concerning trading, custody, and transfer. The likelihood of SEC approval increased significantly after several issuers amended their filings to exclude staking, with Bloomberg raising the approval odds from 25% to 75%.
The approval of spot Ether ETFs has had a notable impact on market dynamics. Following the approval on May 23, the discount on Grayscale’s Ether Trust has narrowed. On May 1, ETHE traded at over a 25% discount to its NAV, but this decreased steadily throughout the month, reaching 1.28% on May 24. While there were concerns about regulatory uncertainty regarding ETH, the gradual discounting of ETF approval possibilities has shifted market sentiment.
Despite the potential for outflows in Grayscale’s Ether ETF, analysts believe that the approval of such ETFs is significant for the overall market sentiment towards ETH. While GBTC’s outflows were offset by inflows into other Bitcoin ETFs by the end of January, the transition of ETHE to a spot ETF could have a similar effect. Even if there are disappointments in short-term inflows, the approval of Ether ETFs could mark a significant shift in market dynamics and investor sentiment towards the cryptocurrency.
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