According to a report by crypto analytics firm K33 Research, Ethereum-based exchange-traded funds (ETFs) enabling direct holding of ether (ETH) are poised to debut in the United States. The firm anticipates these ETFs could attract approximately $4 billion in inflows within the initial five months following their introduction.
K33 Research arrived at this projection by comparing the assets under management of existing ETH-based exchange-traded products globally to similar products centered around bitcoin (BTC), along with analyzing the open interest (OI) in futures contracts on the Chicago Mercantile Exchange (CME), a prominent market for institutional investors.
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Source: K33 Research
Currently, Ethereum's OI on CME stands at 23% of the size of BTC futures, but since the commencement of ETH futures trading on CME in 2021, it has averaged a share of 35% of BTC futures, indicating considerable institutional demand for ETH in the U.S., as per K33's findings.
By extrapolating these proportions from the approximately $14 billion influx into spot BTC ETFs thus far, K33 Research estimates that ETH ETF inflows could range from $3 billion to $4.8 billion within the initial five months of their launch. This projection slightly exceeds JPMorgan's forecast of $3 billion for the year.
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Source: K33 Research
At current prices, this influx would translate to the accumulation of 800,000 to 1.26 million ETH within the ETFs, equating to approximately 0.7% to 1.05% of the total token supply. Consequently, this could create a supply shortage for the asset, as outlined in the report.
Unlike futures-based products, spot ETF issuers will need to procure tokens in the spot market as investors acquire ETF shares. Vetle Lunde, senior analyst at K33 Research, remarked, "As seen in BTC, this monumental supply absorption shock should lead to price appreciation in ETH."
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Following an initial correction in late January, Bitcoin surged nearly 60% to achieve record highs following the debut of U.S. spot ETFs. Analysts at K33 projected that with the introduction of ether ETFs, the price of ETH would begin to outpace BTC after a downtrend in the ETH-BTC pair for almost two and a half years.
Last month, the U.S. Securities and Exchange Commission (SEC) approved key filings for spot ETH ETFs, surprising most market participants. This decision paved the way for the ETFs to be traded in the U.S. Following the completion of necessary paperwork, market observers anticipate the ETFs to commence trading as early as late June or early July, according to the K33 report.
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Interestingly, applicants removed sections of their filings that would have permitted staking the assets in the fund, likely to address regulatory concerns. K33 noted that the exclusion of staking was unlikely to adversely affect inflows to the ETFs, contrary to JPMorgan's position, as 99% of assets under management in Canadian ETH ETFs and 98% of European products are held in funds without staking.
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