Outflows from the Grayscale Ethereum Trust (ETHE) could impact the launch of the Spot Ethereum ETF, creating potential opportunities for traders.
The U.S. Securities and Exchange Commission (SEC) approved eight spot Ethereum ETFs on May 23, which initially sparked positive market sentiment. However, the price of Ether (ETH) showed only a modest reaction.
Before the SEC’s announcement, Ether was priced at $3,742.31. It climbed to $3,959.28 on May 27 but dropped to $3,859.39 by May 28, without a sustained upward trend.
In the lead-up to the approval, Ether’s value had risen by nearly a third. However, concerns about Grayscale’s Ethereum Trust (ETHE), which manages $11 billion, emerged after indications that the SEC might reverse its decision.
Previously, the Grayscale Bitcoin Trust (GBTC) saw $6.5 billion in outflows, or 23% of its assets under management (AUM), following the approval of spot Bitcoin ETFs. Based on this precedent, Kaiko Research estimated that daily outflows from ETHE could average $110 million.
Toni Mateos, co-founder of LAOS Network, predicts significant outflows from ETHE to the new ETF due to the latter’s higher liquidity, narrower spreads, and lower fees. He noted that the new ETF targets a broader market because of these lower barriers to entry.
Despite similarities between GBTC and ETHE, Mateos pointed out a key difference: GBTC held nearly $30 billion in Bitcoin, representing 3.5% of Bitcoin’s market cap, while ETHE holds $11 billion in Ether, representing 2.2% of its market cap. This smaller percentage means the ETF’s impact could be proportionally larger for Ethereum.
Mateos suggested that while short-term outflows might occur, the long-term outlook could be positive if ETH ETF adoption leads to a continuous influx of funds, driving up demand and prices. He also highlighted Ethereum’s environmental appeal, as it operates on a proof-of-stake model, which emits far less carbon than Bitcoin’s proof-of-work system. This could attract climate-conscious investors to the ETH ETF.
Kurt Hemecker, CEO of the Mina Foundation, also emphasized Ethereum’s environmental benefits, suggesting that a spot ETH ETF would be an attractive addition to investment portfolios due to these ESG advantages.
Several factors might mitigate ETHE outflows. James Toledano, chief operating officer at Savl, a self-custodial crypto wallet, pointed out that the limited supply of Ethereum on exchanges could stabilize prices. He explained that low sell-side liquidity might not meet all selling demands from ETHE outflows without significantly affecting the price.
Manthan Dave, co-founder of digital asset custodian Palisade, echoed this view, suggesting that a low supply of Ethereum on exchanges reflects long-term investment sentiment and could support price stability or even increases.
Dave added that Ethereum’s market behavior is influenced by various factors beyond exchange supply levels. He mentioned that Ethereum’s transaction fee-burning mechanism and the staking of ETH in Ethereum 2.0 reduce the circulating supply, offsetting some of the selling pressure from ETHE outflows.
Summary Review: While the outflows from Grayscale’s ETHE could pose challenges, several mitigating factors, including low exchange supply and Ethereum’s unique market dynamics, could stabilize or even boost prices in the long term.
Disclaimer: Remember that nothing in this article and everything under the responsibility of Web30 News should be interpreted as financial advice. The information provided is for entertainment and educational purposes only. Investing in cryptocurrency involves inherent risks and potential investors should be aware that capital is at risk and returns are never guaranteed. It is imperative that you conduct thorough research and consult with a qualified financial advisor before making any investment decision.
