Ethereum, the world’s second-largest cryptocurrency, has taken a backseat this year as Bitcoin reached all-time highs, driven by new U.S. exchange-traded funds (ETFs) that track its price. However, with Ethereum-focused ETFs set to enter the market soon, some analysts predict a potential price rally that could surpass its November 2021 peak of $4,867.60.
Thomas Perfumo, head of strategy at crypto exchange Kraken, noted that Ethereum’s market has roughly half the spot liquidity of Bitcoin. This lower liquidity means that less capital is needed to impact Ethereum’s price compared to Bitcoin. However, predicting these volatile and unpredictable markets remains challenging.
The recent market turbulence has been influenced by the likely liquidation of tokens from the defunct Japanese exchange Mt. Gox, affecting both Bitcoin and Ethereum. Other factors, such as the U.S. Federal Reserve’s interest rate decisions and the upcoming presidential election, could also impact the crypto market. Jag Kooner, head of derivatives at Bitfinex, emphasized the importance of monitoring volatility in both traditional and crypto markets, as well as regulatory developments and macroeconomic policies.
Bitcoin reached new heights in March, peaking at $73,803.25, two months after the first spot Bitcoin ETFs launched. In contrast, Ethereum’s highest price this year has been $4,093.7. Experts suggest that the introduction of Ethereum ETFs could change this, given the tight supply of Ethereum and the potential for ETF inflows to significantly impact its price.
While Ethereum ETFs may not attract the same level of investor interest as Bitcoin ETFs, which have accumulated nearly $38 billion in assets by late June, research from Grayscale Investments suggests that Ethereum ETFs could see 25%-30% of the demand of Bitcoin ETFs. Given Ethereum’s market capitalization is about one-third of Bitcoin’s, the price impact per dollar of inflows into Ethereum ETFs could be comparable, according to Zach Pandl, managing director of research at Grayscale Investments.
Pandl also highlighted that nearly 30% of Ethereum’s supply is staked for yield, and another 10% is locked in smart contracts, reducing the available supply for purchase. This constrained supply, combined with new demand from ETFs, could drive up Ethereum’s price. Matt Hougan, chief investment officer at Bitwise, noted that the supply situation for Ethereum is even tighter than Bitcoin’s.
Predictions for the impact of Ethereum ETFs on its price vary. Standard Chartered estimates that Ethereum could reach $8,000 by the end of the year, while VanEck has raised its price target for Ethereum to $22,000 by 2030. However, some market observers caution that the anticipated impact of the new ETFs might already be reflected in Ethereum’s price, which is up more than 29% this year despite remaining below its all-time high.
Grayscale’s Pandl suggested that because Bitcoin and Ethereum are now more richly valued than they were at the launch of the Bitcoin products earlier this year, the effect of the new ETFs might be slightly smaller.
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