Will ETFs Drive New ETH Demand?

After an arduous and unnecessarily prolonged approval process, spot Ethereum ETFs are finally trading on traditional stock exchanges!

Crypto has eagerly awaited the launch of these products for multiple years, anticipating that their arrival would provide a direct financial incentive for the world’s largest asset managers to shill Ethereum, catalyzing unprecedented inflows into ETH and resulting in mainstream acceptance for onchain activity.

Today, we discuss what the future holds for Ethereum’s most watched metric – price – in a post-ETF world 👇

🔭 Glimpsing into the Future

Spot crypto ETFs have a limited track record, but many have anticipated that spot ETFs will be bullish for ETH, just as they seemingly were for BTC.

Newly launched spot BTC ETFs have been some of the hottest financial products of the year, absorbing $18.6B in outflows from Grayscale’s GBTC and accumulating an additional $17B in assets under management.

Highlighting the relative success of spot BTC ETFs, BlackRock’s IBIT alone has enjoyed more inflows this year than Invesco’s retail-friendly QQQ Nasdaq 100 fund, ranking it fourth overall among ETF funds in terms of year-to-date flows.

Although the absolute dollar value of inflows to spot BTC ETFs has certainly been impressive, it is evident that limited inflows have come from the types of net new buyers, like pensions, these products were intended to attract.

Despite spot BTC ETFs making direct crypto investment available to every major financial institution, demand for these products among institutional investors has been more limited.

Only investment advisors – who allocate private capital that could have been otherwise used to purchase BTC in alternative markets – and hedge funds – entities unlikely to take directional BTC exposure – are notable purchasers in non-isolated instances.

While BTC price has certainly rallied in dollar terms post-ETF, it also hasn't kept pace with Wall Street's top-performing AI stocks and is just barely hanging in with unexciting stocks like General Electric, GoDaddy, Walmart, and Progressive Insurance.

Spot ETFs did not magically drive new capital to purchase crypto exposure; instead, inflows to BTC ETFs were primarily driven by strong risk-on sentiment across markets, and unfortunately, even with the arrival of this highly anticipated catalyst, BTC failed to convincingly crack through and sustain all-time highs.

With BTC topping out over four months ago and global economic data continuing to soften, it is doubtful that broader market tailwinds will continue to be supportive for risky crypto assets.

Additionally, given the litany of existing ways sophisticated investors can purchase ETH exposure through TradFi using futures and trust-based products, it is unlikely there is substantial capital waiting on the sidelines to purchase slightly differentiated spot products.

In light of all of this, new investor demand must materialize for ETH price to increase.

🎉 A Milestone Worth Celebrating

Spot ETFs are the ultimate catalyst to spark investor excitement for ETH and permissionless blockchains at large, but with approval finally occurring, Ethereum will be increasingly judged on its present performance as excitement for its nebulous future expires.

We have arrived at a critical juncture for Ethereum; adoption needs to accelerate for the ecosystem to supplant the traditional financial system. Fortunately, ETF approval should place Ethereum squarely in the spotlight throughout the coming months as issuers advertise their products and investors seek information about the blockchain intended to replace the traditional financial system.

While the mainstream has yet to explore the hidden onchain scene, influential individuals in finance, like BlackRock CEO Larry Fink, preaching the bull case for tokenization and Ethereum could implore non-crypto natives to interact with blockchain technology first-hand.

Once the masses come to understand the vast improvements blockchain provides over antiquated financial systems, onchain usage should accelerate at an exponential rate as more individuals begin storing their wealth in digital assets and utilizing blockchain technology, yielding a positive impact on both price and the fundamental bull case for crypto!

Where Bitcoin’s simplistic digital gold narrative failed to spawn mainstream excitement for crypto and catapult token valuations to new all-time highs, the inception of bullish sentiment on Ethereum would turbocharge onchain usage and send investors diving deeper into the industry.

ETFs give TradFi giants a reason to get excited about crypto and provide Ethereum the best chance at being understood it will ever receive, yet a lack of tangible results this time around could be dire, marking the beginning of Ethereum’s decline and undermining the credibility of the entire cryptocurrency revolution.