The cryptocurrency market is on the brink of a major development with the impending launch of new spot Ethereum ETFs, pending approval from the US Securities and Exchange Commission (SEC). Asset managers are eagerly preparing for this milestone, with Bitwise Chief Investment Officer (CIO) Matt Hougan offering insights into the potential impact of these ETFs on the regulated market. Hougan’s analysis is based on a thorough evaluation of available data, leading to projections of substantial net inflows within the first 18 months of trading.
Hougan’s forecast hinges on the comparison of market capitalizations between Bitcoin (BTC) and Ethereum (ETH). Currently, Bitcoin commands a market cap of $1,266 billion, representing 74% of the combined market, while Ethereum’s market cap stands at $432 billion, accounting for 26% of the market. Drawing from these figures, Hougan anticipates that investors will allocate their funds to Bitcoin and Ethereum exchange-traded products (ETPs) in proportion to their respective market capitalizations.
Based on the $100 billion benchmark set for Bitcoin ETPs by the end of 2025, Hougan suggests that spot Ethereum ETFs would need to attract $35 billion in assets to achieve parity. He estimates that this process will take roughly 18 months. However, Hougan acknowledges that actual inflows may differ due to several factors, including the conversion of the Grayscale Ethereum Trust (ETHE) to an ETP on launch day, bringing along $10 billion in assets. With this in mind, the estimated net inflows required to reach parity would be around $25 billion.
To validate his estimates, Hougan looks to international ETF markets such as Europe and Canada, which already offer Bitcoin and Ethereum ETFs. In these markets, the asset split between the two cryptocurrencies mirrors their market cap breakdowns, further supporting his earlier projections. Bitcoin ETPs make up approximately 78% of the total Assets Under Management (AUM), while Ethereum ETPs represent around 22%.
Hougan also considers the potential impact of the “carry trade” strategy on Bitcoin and Ethereum ETP markets. While a notable portion of US Bitcoin ETP flows are linked to this strategy, he points out that the Ethereum ETP carry trade is not as profitable for institutions. To provide a conservative estimate, Hougan excludes the $10 billion carry-trade-related AUM when sizing the Bitcoin market, resulting in a revised estimate of $15 billion in net inflows for Ethereum ETPs.
Overall, Hougan’s analysis paints a promising picture for the launch of new spot Ethereum ETFs, with the potential for substantial net inflows within the first 18 months of trading. As the cryptocurrency market continues to evolve and gain mainstream acceptance, the introduction of these ETFs could mark a significant step towards widespread adoption and investment in digital assets.
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