Did the trading of ETH spot ETF start today? Is the inflow and selling pressure long?

Original author: Nian Qing, ChainCatcher

On Monday local time, according to regulatory documents and announcements from relevant companies, the U.S. SEC formally approved the listing application for long's ETH Spot ETF. The ETH Spot ETF has officially taken effect, with 424(b) forms being released one after another, and now we are only waiting for the related ETF to be listed on Tuesday morning at 9:30 a.m. Eastern Time (9:30 p.m. on July 23rd, Beijing time).

The first batch of ETH Ethereum Spot ETF applicants include:

• BlackRock SpotETH ETF fees are 0.25% (0.12% for the first 25 billion US dollars or the first 12 months), with code ETHA;
• Fidelity SpotETH ETF fees are 0.25% (management fee waived for the whole year of 2024), with the code FETH;
• Bitwise Spot Ethereum ETF fees are 0.2% (0% for the first $500 million or the first 6 months), with the code ETHW;
• 21 Shares SpotETH ETF has a fee of 0.21% (0% for the first 500 million USD or the first 12 months), with the code GETH;
• The VanEck SpotETH ETF has a fee of 0.2% (0% for the first 1.5 billion US dollars or the first 12 months) and its code is ETHV;
• Invesco Galaxy SpotETH ETF fee is 0.25%, with code QETH;
• Franklin SpotETH ETF has a fee of 0.19% (0% before January 31, 2025 or first 10 billion USD), with the code EZET;
• Grayscale Spot ETH ETF fee is 2.5%, with code ETHE;
• Grayscale Ethereum Mini Trust ETF has a fee of 0.15%, with the code being ETH.

It is worth mentioning that, like GBTC of Grayscale, Grayscale will convert the existing Grayscale Ethereum Trust ETHE into ETF, still continuing the previous fee rate of 2.5%. In October last year, Grayscale and NYSE Arca jointly applied to convert the Grayscale Ethereum Trust Fund under Grayscale into Ethereum Spot ETF.

According to the official data of Grayscale, the ETHE trust was established in December 2017, listed in June 2019, and the date of ETF listing was July 23. Currently, ETHE holds 2.63 million ETH. Due to its early establishment, Grayscale's average cost of holding ETH is only a few hundred US dollars. In addition, after ETHE is converted to ETF, the fee rate still remains at 2.5%. Some opinions believe that, due to the fact that ETHE was not allowed to redeem during the trust period and has a 6-month lock-up period, coupled with the high fees of ETHE, which are 10 times higher than its competitors, this will lead to a significant outflow.

Despite Grayscale's introduction of the Grayscale Mini Trust ETF (fees dropping from 0.25% to 0.15%, free for the first 6 months, currently the lowest fee ETF) to prevent capital outflows, it is still difficult to avoid selling pressure like what happened after GTBC went public.

Viewpoint: ETHE's selling pressure will not be as high as GBTC's

ETHE was listed in 2019, and like GBTC, it is one of the earliest funds in the US market that is tied to ETH. Previously, ETHE was a closed-end fund, and its structure led to certain Arbitrage opportunities due to the premium and discount of the fund price relative to the net asset value. However, due to a series of bankruptcies such as FTX and DCG, GBTC and other trusts were once criticized by the market as the "instigator of institutional bubbles and collapses".

In addition, ETFs are more transparent than trust products, with stronger liquidity, lower thresholds and redemption risks, and are more easily accepted by mutual fund managers and pension funds. Therefore, they are more popular in the market. Therefore, while other institutions are applying for Spot ETFs for encrypted assets, trust products such as GBTC and ETHE from Grayscale have ultimately been converted into ETF products in order to avoid being gradually marginalized.

Due to the continued selling pressure caused by the successful conversion of GBTC to BTCSpot ETF a long month ago, there are also concerns in the market about potential large-scale outflows after the listing of ETHE.

According to Farside Investors data, as of July 22, GBTC has been facing capital outflows, with a total net outflow of 18.49 billion US dollars. Although Grayscale holds 2.63 million ETH (worth about 9.3 billion US dollars), which is significantly different from its GBTC scale, it is conceivable that the high fee of ETHE will still bring about certain outflows.

However, analyst Theclues believes that there are significant differences between ETHE and GBTC, and the selling pressure after the listing of ETHE will not be as intense as GBTC.

She believes that BTC ETF has not encountered any obstacles before and is expected to be stable. In the three months before January 10th, it pumped nearly 100%.

While ETH ETF has been full of twists and turns, especially the huge reversal from 'short-term failure to pass' to 'passing in July', the expected speculation has restarted from 2800, and the current increase is 21%. The driving force behind the sell news comes from the profit situation of expected speculative funds. In comparison, the motivation for selling ETH is incomparable to BTC.

In addition, although ETHE also has an Arbitrage profit order (buy at a discount of 40% to catch the bottom), there is a very big difference between ETHE and GBTC, GBTC only had a weekly volume of more than $100 million before it was converted into an ETF, and the current ETHE has more than $400 million in weekly trading, which has lasted for several weeks, in addition, the ETHE premium has narrowed to less than 6% very early, and the premium has gradually recovered two weeks before GBTC was converted to an ETF. Therefore, there is enough room and market depth for ETHE Arbitrage to sell ETHE shares. She argues that many dump predictions based on the idea that the "predicted subject" is static is very subjective.

In addition, even if there is selling pressure and dump in the short term, ETHE will be absorbed by other Ethereum ETFs in the long term. We can see from the inflow and outflow trends of the BTCSpot ETF that despite the large outflow of GBTC, as of July 22, the net inflow of BTCSpot ETF has exceeded 17 billion USD. And from the price performance, the selling pressure has not had a long-term impact on the BTC price.

In addition, there is another key move that Grayscale has taken compared to GBTC, which is the splitting of the Mini Trust ETF from ETHE. According to its official website, as of July 18, 2024, 10% of the underlying ETH of Grayscale Ethereum Trust (ETHE Trust) was split when creating Grayscale Ethereum Mini Trust (ETH Trust), so the net asset value of ETHE Trust shares will be 10% lower than the net asset value of the previous day on July 18, 2024 (without considering any potential pump or fall in ETH price), and ETHE Trust shareholders will receive the split benefits without taking any action and will be entitled to receive ETH Trust shares on a 1:1 basis. Therefore, their overall exposure to ETH will remain unchanged.

Currently, Grayscale holds two ETFs, ETHE and ETH. ETHE holds an initial 90% of ETH with a management fee of 2.5%, which is more suitable for institutions and professional investors. ETH holds 10% of the initial ETH with a lower management fee to reduce user attrition and potential drop pressure.

Therefore, compared to GBTC, the outflow of ETHE will be more moderate as holders transition to Mini Trust ETF.

Grayscale's Mini Trust ETF can also help long-term holder reasonably avoid taxes, which helps ETHE holder find a good middle ground between not reducing income and selling, especially for holders who are potentially affected by capital gains tax.

Estimate the inflow scale of ETH ETF

Currently, many institutions have estimated the inflow scale of ETH ETF:

Grayscale's research team expects the demand for the US SpotETH ETF to reach 25% -30% of the demand for the SpotBTC ETF. A significant portion of the ETH supply (such as staked ETH) may not be used for the ETF.

ASXN digital asset research believes that when ETH ETF is launched, ETHE holder will have a 2-month window to exit at a price range close to the face value. This is a key variable that will help prevent outflows of ETHE, especially exit flows. ASXN's internal estimate is an inflow of $8 billion to $12 billion per month. This is calculated by taking the Market Cap-weighted average of monthly BTC inflows and then multiplying by ETH's Market Cap.

Bloomberg ETF analyst Eric Balchunas predicts that the ETHSpot ETF may receive 10% to 15% of the assets obtained by the BTCSpot ETF, reaching 5 billion to 8 billion US dollars.

Galaxy expects the net inflows of ETH ETF to reach 20-50% of the net inflows of BTC ETF in the first five months, with a target of 30%, which means a monthly net inflow of $1 billion.

The godfish prediction, the main capital inflow in the early listing period from June to December may come from retail investors, accounting for 80 to 90% of the total capital, with less participation from institutional users. Considering that ETHE is similar to GBTC, the market may face some arbitrage and selling pressure. Whether it can withstand this selling pressure remains to be seen. After December, institutional investors may gradually enter the market.

However, the market generally believes that the inflow brought by ETH ETF is limited.

J.P. Morgan's Nikolaos Panigirtzoglou predicted at the end of May that the inflow into ETH ETFs may only be a small fraction of BTC's.

Citibank expects ETF inflows to account for 30% -35% of Bitcoin inflows. CoinDesk quotes the report as saying that this figure will reach 4.7 billion to 5.4 billion US dollars in the next six months.

Both banks believe that BTC has a first-mover advantage and emphasize that the functionality provided by Ether cannot be achieved through ETF, thus limiting the demand.

How Will ETH Price Be Affected?

Currently, the prevailing view in the market is that. Due to the phenomenon of Sell the News appeared in May because of the approval of the ETH Spot ETF, and the waiting time for the market was long enough between the approval of the 19-b and S-1 application documents by the SEC, which may have already digested the impact of the ETF on the market, so the ETH ETF may not bring too much Fluctuation to the price of ETH.

In addition, there are also some optimistic views that believe that after the first batch of ETFs is launched, Ethereum's performance will surpass BTC.

Research by analysis firm Kaiko shows that the upcoming ETH ETF is expected to enhance ETH's performance relative to BTC. Kaiko indicates that since the regulatory approval of the ETF in May, the ratio of ETH to BTC (an indicator for comparing the two major cryptocurrencies) has significantly risen from 0.045 to 0.05 and has remained at a high level. In other words, purchasing one ETH requires a longer BTC, and when the ETF goes live, this trend will only deepen further. Despite the fluctuation in ETH's price since May, this ratio indicates that ETH is ready to pump.

SynFutures CEO Rachel Lin said in May that in addition to demand factors, supply changes will also bring upward space, which will lead to a tightening of the price ratio between BTC and ETH. She believes that the market's attitude towards ETH is "not optimistic enough" now, and all indicators indicate that ETH will experience a large-scale bull market in the coming months.

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