The U.S. Securities and Exchange Commission (SEC) surprised the markets by approving eight spot Ethereum ETFs on May 23, which generated a positive sentiment. However, the price of Ether (ETH) did not show much reaction to this news. Prior to the SEC announcement, the price of Ether was $3,742.31, then it rose to $3,959.28 on May 27 before falling to $3,859.39 on May 28. The market has not experienced a consistent bull run yet.
Ether prices have been volatile over the past 7 days, with the value of Ether rising by nearly one-third leading up to the approval. However, concerns about Grayscale’s Ethereum Trust (ETHE), which manages $11 billion in funds, emerged when indications suggested that the SEC might reverse its decision. This concern influenced the price action.
In the month following the approval of spot Bitcoin ETFs, the Grayscale Bitcoin Trust (GBTC) saw $6.5 billion in outflows, which amounted to 23% of its assets under management (AUM). A report by Kaiko Research estimated that average daily outflows from ETHE would amount to $110 million if history repeats itself.
Toni Mateos, co-founder of LAOS Network, predicts significant outflows from ETHE to the new ETFs due to their higher liquidity, narrower spreads, and lower fees. Mateos believes that the impact of the ETFs on ETHE will be proportionally larger than the impact on BTC due to ETHE’s smaller market cap percentage. However, Mateos also sees a positive long-term outlook if the ETH ETF adoption leads to a continuous influx of funds, which would drive prices higher. The Ethereum network’s environmental appeal, with its lower carbon emissions compared to Bitcoin, may attract ESG-focused investors to the ETH ETF.
Kurt Hemecker, CEO of the Mina Foundation, also emphasizes Ethereum’s environmental appeal and sees it as a positive long-term outlook for the ETH ETF. He believes that the added ESG benefits of a spot ETH ETF would make it an attractive addition to investment portfolios for mainstream and institutional investors.
While there are concerns about potential outflows from ETHE, there are factors that could mitigate these outflows. James Toledano, COO at Savl, points out that the low supply of Ethereum on exchanges could limit sell-side liquidity, potentially stabilizing prices. Manthan Dave, co-founder of Palisade, believes that the historic low supply of Ethereum on exchanges reflects a long-term investment sentiment and indicates a bullish market outlook.
It is important to consider other factors beyond exchange supply levels when evaluating Ethereum’s market dynamics. Ethereum’s transaction fee-burning mechanism reduces the circulating supply over time, and Ethereum 2.0 further reduces the available supply with staking. Kris Kay from the DeFi Donut YouTube channel suggests that the slow issuance rate of ETH, which often turns deflationary, could result in price appreciation multiple times that of BTC.
Furthermore, the approval of spot Ethereum ETFs has generated a positive mood in the market. Industry figures believe that this approval boosts confidence in the industry and opens up Ethereum to a wider range of potential buyers. Oleg Fomenko, co-founder of Sweat Economy, predicts that the influx of institutional money through the approved ETFs could potentially increase ETH’s price up to $7,000 in the next three months.