Ethereum ETF has been highly anticipated by cryptocurrency enthusiasts for the past few years, in particular by investors who want to gain exposure to ETH without the need to directly purchase and hold the cryptocurrency to avoid concerns about wallet security, private keys, and other technical barriers that are often faced while making crypto investments.
In the mid-2010s, several major companies submitted proposals to the U.S. SEC for Bitcoin ETFs. However, these initial attempts faced significant regulatory challenges, primarily due to concerns over market volatility and investor protection. The landscape began to shift when the first Bitcoin ETFs launched successfully in Canada in 2021.
This year, both the Bitcoin ETF and the Ethereum ETF have been approved in Hong Kong and the U.S..
What are ETFs?
Exchange-traded funds (ETFs) are securities that track the performance of a collection of assets or commodities.
ETFs blend the flexibility of stocks with the diversification of mutual funds. They're bought and sold on the market like stocks, providing easy access to a wide range of asset classes. ETFs aim to mirror the price movement of an index or a collection of assets. A financial firm buys a basket of assets, such as stocks or bonds, and sells shares that track the fund's value. When you buy ETF shares, you don't own the underlying assets; instead, the firm managing the ETF does.
Many Ethereum ETFs mainly hold ETH futures contracts, while some also include a mix of ether and bitcoin futures. This method of using futures to follow the price of a digital asset isn't new. For instance, the first bitcoin ETF, ProShares Bitcoin Strategy ETF (BITO), holds cash-settled, front-month bitcoin futures.
Impact on Hong Kong and the U.S.
1. Hong Kong
On Monday, April 14, the Hong Kong SFC approved the trading of Spot Bitcoin and Ethereum ETFs, making Hong Kong the first to introduce Spot Ethereum ETFs. This is a major milestone, with similar discussions ongoing with the U.S. SEC at that time.
China Asset Management, Bosera Capital, and HashKey Capital Limited have received approval to launch these ETFs, allowing investors to buy shares in Bitcoin and Ethereum ETFs.
The approval of Bitcoin ETFs in Hong Kong has received mixed reactions. Some view it as a significant step towards mainstream acceptance of cryptocurrencies. These ETFs, developed over a decade, allow investors to engage with Bitcoin and Ethereum prices without low risks. HashKey Group's COO, Livio Wang, highlighted the potential to attract traditional financial institutions and provide a user-friendly investment platform.
Unique to Hong Kong, these ETFs offer both fiat and cryptocurrency-based subscriptions and redemption, which is expected to boost capital inflow into Hong Kong's digital asset market, potentially positioning it as a leading crypto hub in Asia.
Despite the positive outlook, there are still concerns about how inflation and geopolitical tensions might impact the overall market. Speculation regarding future prices is mounting due to the anticipation surrounding Bitcoin's Halving event.
Eric Balchunas from Bloomberg has pointed out the significant contrast in the scale of ETF markets between the U.S. and Hong Kong. He predicts that regulatory barriers for Mainland China investors will result in only modest inflows.
Similarly, Thielen from 10x Research has opted to sell off his crypto assets due to worries about a potential market downturn amid ongoing inflation and increasing treasury yields. He does not see any current factors that would drive up prices, despite the excitement about Hong Kong's ETFs, emphasises the volatile nature of the crypto market, citing Bitcoin's recent drop due to tensions in the Middle East.
2. The U.S.
The U.S. Securities and Exchange Commission (SEC) has begun the approval process for the much-anticipated Ethereum ETFs. Ongoing discussions between potential issuers and the SEC have made many crypto enthusiasts quite hopeful.
According to CoinTelegraph, journalist Eleanor Terrett reported that talks between SEC staff and Ethereum ETFs issuers about the S-1 forms concluded with the acknowledgment that some work remains to be done.
The anticipated approval of spot Ethereum ETFs in the U.S. could lead to a significant rise in Ethereum's value, potentially mirroring the reaction seen with Bitcoin ETFs. When Bitcoin ETFs were approved, Bitcoin's price surged from $42,000 to over $73,000 in just two weeks, according to CoinGecko data.
QCP Capital forecasts that the approval of Ethereum ETFs could drive a rally of up to 60% in the coming months. This prediction is based on the positive market reaction to Bitcoin ETFs in January. Implied volatility, which measures expected future price fluctuations, is above 100%, indicating the market is bracing for significant movements.
On May 21, more than 100,000 ETH were purchased in a single day, which qualifies as the highest daily level since September 2023, according to CryptoQuant. This surge in buying has pushed open interest on Ether-tracked futures to a record $14 billion, which is 67% of Bitcoin's open interest, an unusually high level.
Activity on the Chicago Mercantile Exchange (CME), preferred by institutional investors, has also spiked. Ether futures trading hit a record $2.85 billion on Tuesday, and Ether options traded 1,135 contracts worth $216 million, indicating strong institutional interest.
While the market is optimistic, with some analysts increasing the likelihood of approval from 25% to over 75%, the increased exchange flows of 62,000 ETH suggest potential price volatility.
Conclusion
SEC’s and SFC’s approval for Ethereum ETFs has created great opportunities and convenience for crypto traders. More crypto ETFs, such as the Solana ETF, are expected. However, as more regulators tend to view most cryptocurrencies as securities, the road to the maturity of cryptocurrency ETFs is still far away.
Disclaimer: Please note that the information provided on this website is intended for informational purposes only. CoinEx assumes no liability for any financial losses resulting from cryptocurrency trading. It is advised that you conduct your own research.
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