The U.S. Securities and Exchange Commission (SEC) has officially approved nine Ethereum spot ETF applications, with trading set to begin soon. This marks a significant milestone following the approval of Bitcoin ETFs earlier this year, yet analysts question whether Ethereum ETFs can replicate the same level of success.
Ethereum Spot ETFs: Key Details and Launch Timeline
On July 23, the SEC approved S-1 applications from nine issuers, paving the way for Ethereum spot ETFs to start trading. The Chicago Board Options Exchange (Cboe) confirmed that five of these ETFs will list on its platform, including offerings from Fidelity, VanEck, and Invesco Galaxy.
BlackRock also announced that its iShares Ethereum ETF will begin trading on Nasdaq. According to Bloomberg ETF analyst Eric Balchunas, the final regulatory steps have been completed, and trading is scheduled to start at 9:30 AM ET on July 23.
Fee Structures of Approved Ethereum ETFs
The approved Ethereum ETFs feature competitive fee structures, with most issuers offering temporary fee waivers to attract early investors:
- BlackRock: 0.25% (0.12% for first $2.5B or 12 months)
- Fidelity: 0.25% (0% through 2024)
- Bitwise: 0.20% (0% for first $500M or 6 months)
- 21Shares: 0.21% (0% for first $500M or 12 months)
- VanEck: 0.20% (0% for first $1.5B or 12 months)
- Grayscale: 2.50% for existing ETHE conversion; 0.25% for mini ETF
Notably, Grayscale's conversion of its existing Ethereum Trust comes with a significantly higher fee compared to new entrants.
Can Ethereum ETFs Match Bitcoin ETF Performance?
While the crypto community hopes Ethereum ETFs will replicate Bitcoin ETF success, several factors suggest this outcome is unlikely.
Bitcoin ETF: A Tough Act to Follow
Bitcoin ETFs have achieved remarkable success since their January launch, with assets under management surpassing $54 billion. These funds now hold over 908,000 BTC, representing approximately 4.6% of Bitcoin's total supply. Recent data shows weekly inflows of $1.08 billion, with total inflows reaching $17.3 billion since launch.
This overwhelming success demonstrates American investors' strong preference for Bitcoin as a crypto investment vehicle. Currently, no other ETF category comes close to matching these inflow numbers.
Structural Differences Between Ethereum and Bitcoin
Ethereum's fundamental structure presents challenges for ETF performance comparison:
- Approximately 27.57% of Ethereum supply is staked on the Beacon Chain
- Additional Ethereum is locked in DeFi protocols, L2 bridges, and smart contracts
- Ethereum's Proof-of-Stake consensus mechanism differs fundamentally from Bitcoin's Proof-of-Work
- The generation mechanism and economic model represent different value propositions
These structural differences mean traditional markets may value Ethereum differently than Bitcoin.
The Solana Factor: Unexpected Competition
Interestingly, Solana has gained significant traction in U.S. markets, outperforming both Bitcoin and Ethereum in recent months. SOL has increased by approximately 619% over the past year, compared to 51.65% for Bitcoin and 49.80% for Ethereum over the past six months.
Why Solana Appeals to U.S. Investors
Several factors contribute to Solana's growing popularity:
- New protocols in MeMe, DeFi, and GameFi sectors driving growth
- Seven of Solana's top ten TVL gainers launched in 2024
- Limited token distribution issues compared to Ethereum
- Higher growth potential from newer ecosystem development
The Solana ecosystem has demonstrated impressive growth, with Total Value Locked (TVL) increasing by over 25% in one month to exceed $5.28 billion. The network has generated at least $1.5 million daily since June, with recent weekly on-chain transaction volume exceeding $2 billion.
Potential Solana ETF Applications
Both 21Shares and VanEck have filed for Solana ETF products, though regulatory hurdles remain. The SEC's enforcement division has previously classified SOL as a security, which could create significant obstacles for approval. However, if the next U.S. administration adopts more crypto-friendly policies, Solana ETFs could further fragment the crypto ETF market.
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Market Outlook and Institutional Predictions
Financial institutions have varied predictions for Ethereum ETF inflows:
- Standard Chartered: Up to $2 billion monthly
- JPMorgan: Approximately $500 million monthly
- Bitwise CTO Matt Hougan: $15 billion in net flows over first 18 months
- Grayscale Research: 25%-30% of Bitcoin ETF demand
- Galaxy Digital: 30% of Bitcoin's first five-month inflows
- Steno Research: $15-20 billion in first year
- Citi: 30-35% of Bitcoin inflows ($4.7-5.4 billion over six months)
Despite these predictions, current market sentiment appears subdued. Ethereum's price reaction to the approval has been modest, with only a 1.21% increase following the announcement.
Challenges Facing Ethereum ETFs
Several factors may limit Ethereum ETF success compared to Bitcoin:
Absence of Staking Functionality
The SEC rejected staking provisions in Ethereum ETF applications, citing concerns about unregistered securities offerings. This means ETF investors cannot participate in Ethereum's staking rewards, removing a key advantage of direct Ethereum ownership.
Liquidity Concerns
Exchange-held Ethereum has reached multi-year lows, with liquidity increasingly shifting toward Bitcoin markets throughout 2024. This creates inherent liquidity challenges for the new ETFs.
Conversion-Related Selling Pressure
Market participants remember Grayscale's Bitcoin Trust conversion, which created sustained selling pressure for over a month. Similar concerns exist regarding Grayscale's Ethereum Trust conversion, potentially creating headwinds for prices.
Anticipated Price Action
The extended approval process for Ethereum ETFs (from May to July) may have already priced in much of the positive sentiment, limiting potential upside from the actual launch.
The Bigger Picture: Ethereum's Value Proposition
Despite potential short-term challenges, Ethereum ETFs provide access to a differentiated crypto asset with unique characteristics. The Ethereum ecosystem remains robust with:
- Over 15 million monthly active addresses
- 300% growth in smart contract deployments during 2023
- Continued expansion of DeFi, NFT, and institutional applications
ETF approval represents another step toward mainstream crypto adoption and provides traditional investors with regulated exposure to Ethereum's potential.
Frequently Asked Questions
When will Ethereum ETFs begin trading?
Ethereum spot ETFs are scheduled to begin trading on July 23, 2024, at 9:30 AM Eastern Time.
What is the main difference between Bitcoin and Ethereum ETFs?
While both provide crypto exposure, Bitcoin ETFs track a pure cryptocurrency asset, while Ethereum ETFs track a network that includes smart contract functionality and staking capabilities (though staking is not included in the ETFs).
Why are Ethereum ETF fees lower than Grayscale's existing product?
New ETF issuers are competing aggressively with low fees and temporary waivers, while Grayscale is converting an existing trust with established fee structures.
Will Ethereum ETFs include staking rewards?
No, the SEC rejected staking functionality in all Ethereum ETF applications due to regulatory concerns about unregistered securities offerings.
How might Solana affect Ethereum ETF performance?
If Solana ETFs receive approval in the future, they could divert some institutional investment that might otherwise have gone to Ethereum products, particularly given Solana's recent performance.
What are reasonable expectations for Ethereum ETF inflows?
Most analysts expect Ethereum ETFs to capture 25-35% of Bitcoin ETF inflows, though predictions vary widely between institutions.
Can Ethereum ETF approval boost the broader crypto market?
While Ethereum ETF approval represents another milestone for crypto acceptance, its immediate market impact may be limited compared to Bitcoin ETF approval due to different market structures and investor perceptions.