Ethereum ETFs finally hit the U.S. markets on July 23, 2024, with approval from the Securities and Exchange Commission.

Since the introduction of Bitcoin ETFs in January, the excitement around its Ethereum equivalents has steadily grown. On their first day, Ethereum ETFs generated over $1.1 billion in trading volume. This early success has the market buzzing with speculation about future developments. Will Ethereum ETFs mirror Bitcoin’s success? Will we see other crypto ETFs?

Global Crypto News had the opportunity to speak with Federico Brokate, VP, Head of the U.S. Business for 21Shares, one of the largest crypto ETF issuers, to gain insights on the topic. Despite lagging behind Bitcoin at launch, Brokate expects Ethereum ETFs to see an uptick in adoption in the coming months.

Bitcoin ETFs have achieved significant success, with $17 billion in net inflows since their launch. Considering Ether’s relative unfamiliarity and its different market dynamics, including a smaller market cap, there is curiosity about whether Ether ETFs will achieve a similar level of success.

The success of the spot bitcoin ETF suite has been notable, driven by the adoption of institutional and retail investors alike. For the spot ethereum ETFs, similar to bitcoin, we expect to see strong demand from all types of investors as well. If we look at other ETF markets around the world, like the European market, for example, what we find is the asset split between Bitcoin and Ethereum tends to follow their market cap weighting. This could translate into spot bitcoin ETFs capturing ~70% of assets while spot ethereum ETFs would capture ~30%.

On their first day of trading, spot ethereum ETFs saw ~$1 billion in total volume, which is ~23% of what the spot Bitcoin ETFs achieved on their first day.

Was the Launch of ETH ETFs a Success?

The spot ethereum ETF category saw over $1 billion in volume on its first day of trading, which is viewed as a highly successful day one. This demonstrates the demand for and interest in digital asset exchange-traded products by U.S. investors. Every spot Ethereum ETF in the category ranked in the top decile for day-one trading volumes for all ETFs launched over the past year in the U.S. This is impressive for a new product category, given the launch took place during the traditionally slower summer months. More accelerated adoption is expected in the fall period.

Ethereum as a Technology Investment

Ethereum is viewed as a technology investment rather than a store of value. Bitcoin and Ethereum are the two largest cryptocurrencies by market cap; however, Bitcoin’s value proposition and portfolio fit are better understood by investors broadly. The value proposition for Bitcoin is well-defined as digital gold, providing investors with non-correlated returns and serving as a hedge against economic instability.

Ethereum, on the other hand, is more complex and akin to a growth equity or technology investment. In the near term, Ethereum is seen as a platform for tokenization, stablecoins, and decentralized finance. In terms of adoption, investors tend to add both Bitcoin and Ethereum to their portfolios instead of replacing one with the other. Adding both exposures to a traditional 60/40 portfolio can provide investors with a superior risk-adjusted return profile. The disruptive potential of the Ethereum platform is expected to attract more investors as they learn more about it.

Wealth Managers and Ether ETFs

Many wealth managers have already allocated significant capital to Bitcoin ETFs and may have reached their crypto investment limits. However, the market has demonstrated that digital assets are here to stay, with many wealth managers, particularly RIAs, being early adopters of digital asset ETFs. The adoption process by the broader wealth ecosystem is still in its early stages, and there is an acceleration as they complete their due diligence process. Adoption by wealth managers will vary, but ultimately, they are expected to be among the largest buyers of digital asset ETFs going forward. The demand is there, and offering exposure to Bitcoin and Ethereum blockchains through the ETF wrapper on a regulated exchange is an exciting development.

Future Cryptocurrencies in ETFs

With the introduction of another ETF, the possibility of other cryptocurrencies like Solana being next in line for ETF approval is being considered. 21Shares is excited about the potential to bring an ETF that provides access to the Solana ecosystem to U.S. clients. Product innovation is a core part of the mission to bring easily accessible digital asset products to clients. 21Shares has filed an application with the SEC for a Solana ETF and is working to bring this product to the U.S. market. Many cryptocurrencies qualify as eligible underlyings for ETFs, and there is potential for expanding access to crypto as an asset class.

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