Bitwise CIO Bullish On Spot Ethereum ETFs: Envisions $15 Billion Inflows
June 25 2024 - 2:00PM
NEWSBTC
In a significant development for the cryptocurrency market, asset
managers are eagerly preparing for the launch of new spot Ethereum
ETFs, pending approval from the US Securities and Exchange
Commission (SEC). Bitwise Chief Investment Officer (CIO) Matt
Hougan has weighed in on the potential of these ETFs, predicting
substantial inflows into the regulated market within the first
months of trading. Market Data Suggests $15B Demand For Spot
Ethereum ETFs Hougan’s projections are based on a thorough analysis
of available data. He emphasizes that there is no need for
speculation when estimating the demand for spot Ethereum ETFs.
Instead, Hougan points to the existing market data to support his
forecast of $15 billion in net inflows during the initial 18-month
period. To arrive at this estimate, Hougan compares the relative
market capitalizations of Bitcoin (BTC) and Ethereum (ETH). As a
starting point, he expects investors to allocate to Bitcoin and
Ethereum exchange-traded products (ETPs) roughly in proportion to
their market capitalizations. Related Reading: 10x Your
Crypto Portfolio: Top Analyst Highlights 4 Altcoins To Buy
Bitcoin’s market cap currently stands at $1,266 billion,
representing 74% of the combined market, while Ethereum’s market
cap is $432 billion, accounting for 26% of the combined market.
Considering US investors already have around $56 billion invested
in spot Bitcoin ETPs, Hougan anticipates reaching $100 billion or
more by the end of 2025 as these ETFs mature and gain approval on
prominent platforms such as Morgan Stanley and Merrill Lynch.
Using this $100 billion benchmark, he suggests that spot Ethereum
ETFs would need to attract $35 billion in assets to achieve parity,
which he estimates will take approximately 18 months. However,
Hougan acknowledges that the actual inflows may differ due to
various factors. For instance, the Grayscale Ethereum Trust (ETHE)
is expected to convert to an ETP on the launch day, bringing along
$10 billion in assets. Factoring this in, the estimated net inflows
to reach parity would be around $25 billion. Analysis Of
International ETF Markets To validate his estimates, Hougan
looks at international ETF markets, particularly Europe and Canada,
which already offer Bitcoin and Ethereum ETFs. The asset
split between the two cryptocurrencies in these markets is similar,
according to Hougan, with Bitcoin ETPs accounting for approximately
78% and Ethereum ETPs representing around 22% of the total Assets
Under Management (AUM). This alignment with market cap breakdowns
strengthens Hougan’s earlier estimate. Hougan also considers the
potential impact of the “carry trade” on Bitcoin and Ethereum ETP
markets. While a significant fraction of US Bitcoin ETP flows are
linked to the carry trade strategy, he highlights that the Ethereum
ETP carry trade is not profitable for institutions. To
maintain a conservative estimate, Hougan removes the $10 billion
carry-trade-related AUM when sizing the Bitcoin market, leading to
a revised estimate of $15 billion in net inflows for Ethereum ETPs.
Related Reading: Analysts Battle Over Cardano’s Next Move: 12,000%
Rally Or 50% Crash? In sum, Hougan believes that while there are
several factors to consider and potential adjustments to the model,
a starting point of $15 billion in net new demand for spot Ethereum
ETFs within the next 18 months is a reasonable projection. At
the time of writing, ETH was trading at $3,405, up nearly 3% in the
past 24 hours, after hitting a low of $3,230 on Monday.
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