Back in July, when spot Ethereum ETFs got the final tick of approval from the US Securities and Exchange Commission (SEC), the occasion was described as a “noteworthy milestone”; however, what has ensued is significant price declines suggesting that this asset may have fallen out of favour.
The second largest cryptocurrency, which was trading at around US$3,478 on 23 July, the day of US SEC approval, currently sits at around US$2,515.
It has declined 6 per cent in the last five days alone, and over 26 per cent since it got the SEC’s vote of confidence.
This trend marks a significant departure from the experience had by bitcoin earlier this year, which saw its price soar over 30 per cent between January and March after the trading of spot bitcoin ETFs was approved.
BlackRock’s bitcoin offering alone has seen around US$16.6 billion in inflows, while Fidelity’s product has seen around US$8.9 billion.
Speaking to InvestorDaily, Billy Leung, investment strategist at Global X, explained how, in contrast to the surprise approval of bitcoin ETFs in January, Ethereum’s final round of approvals was anticipated.
In light of this, he said, the significant price declines did not entirely surprise him.
“I was following this very closely before the ETFs were launched and what I saw was a lot of pre-positioning,” he said.
“The bitcoin ETF came as more of a surprise, but with the Ethereum ETF, there was a lot of time for it, there were a lot of discussions.”
Notably, Ethereum did see a boost in the days leading up to the SEC’s first round of approvals, Leung pointed out, with the cryptocurrency gaining 23.1 per cent over four days between 20 and 24 May.
Ben Celermajer, co-chief investment officer at Magnet Capital, offered another theory, noting that Ethereum ETFs launched into a “much softer and more uncertain macro market”.
Additionally, he explained, Ethereum is a more complex asset class to understand than bitcoin, resulting in more staggered adoption and potentially a smaller investor base to start with.
“The investment case for bitcoin, i.e. digital gold, is currently a lot clearer and simpler for institutions to understand,” Celermajer told InvestorDaily.
“Ethereum is a public blockchain infrastructure that requires more understanding and knowledge of what the applications and revenue models are,” he said, adding that, naturally, it takes more time for investors to get comfortable with a new investment thesis.
Over the short term, he expects interest in Ethereum to potentially wane as investors adopt a wait-and-watch approach.
“Whilst macro uncertainty is high and the regulatory conditions surrounding the Ethereum ecosystem remain uncertain, investors might just be waiting for clarity,” he said.
But Celermajer observed, the fog should clear heading towards the end of 2024, against the backdrop of rate cuts in the US and the impending election.
Particularly, the US election in November should provide insights into whether or not crypto will remain under a “hostile” Democrat administration, he said, or transition into a Trump administration, which has already voiced support for the asset class.
Global X’s Leung agreed these two factors will prove pivotal in determining the trajectory of Ethereum’s price.
“As we’re entering US interest rate cuts, people could be using bitcoin as a form of trade, hedged or unhedged, rather than Ethereum, so there’s that complexity and divergence,” he said.
Also, as the odds of a Harris win have increased, the crypto space has already demonstrated nerves.
“With Ethereum having high beta, I think that will hit it hard as well,” he said.
But, for the investment strategist, short-term uncertainty does not rule out Ethereum entirely.
Rather, it’s “a case of when, not if” Ethereum will see a rebound.
“In the near term, it’s much harder to understand and the use cases haven’t come out yet, but I think this is the larger investment case of cryptocurrencies,” Leung told InvestorDaily.
He also expects institutional investors to eventually enter this space and benefit from the new ETF wrapper.
“Like we’ve discussed with bitcoin ETFs, it’s safer, it’s easier, it’s more accessible, there’s more liquidity, these are all the same factors for Ethereum ETFs as well. I don’t see any difference in preferences,” Leung said.
“We’ve seen a lot of advisers and asset managers actually put our bitcoin products on their lists, and it’s a matter of time till people have that understanding for Ethereum.”
