Pardon the cliché, but it felt like yesterday when the US SEC approved 11 spot Bitcoin ETF in January.
Since then, BTC hit an ATH of $73K, only to retrace to around $56K; it’s anything but Bitcoin “mooning” and hitting $100,000 on the back of institutional interest by the end of this year.
Yet, two events have barely moved BTC’s price, and too much attention has been paid to memecoins in recent months. As such, people are turning to the next narrative to potentially spark the next bull run for the digital assets that matter.
Spot Ethereum ETFs.
Weren’t these approved?
Yes, according to US SEC documentation (post below), including modifications to allow ETF providers to launch these products following the regulator’s requirements.
However, unlike those for Bitcoin, these funds haven’t officially opened for trading on stock markets.
For example, the US SEC wasn’t in favour of allowing these ETF issuers to provide their clients the opportunity to earn yield by staking ETH, as is available for those holding ETH via conventional means, i.e., non-custodial and custodial wallets (centralised exchanges or similar).
This is a shame as it would have made it even more enticing for people to hold Ether to boost its price.
Then again, it’s 2024, and a large cohort of tech-savvy investors can easily stake ETH, even via something similar to an ETF, in the form of a regulated and long-standing centralised exchange.
In other words, we don’t need these funds, but many laypeople prefer the convenience they offer (including potential tax benefits), even if they affect decentralisation, particularly in the long term.
Regardless, it is a bullish signal for the leading altcoin and should help boost the rest of the market.
Of course, we’re not stopping at Ethereum.
Solana, XRP, Cardano…(insert major altcoin)… spot ETFs.
It wouldn’t be crypto without a new narrative and constant hype.
Last month, I wrote about why ETH will likely hit $40K by the next cycle.
If you understand tokenomics for a given asset — particularly when tied to the leading smart contracts platform — you’re ahead of about 85–90% of people.
Why? Many people, including those in crypto, don’t understand ETH’s burn mechanism and how it makes it deflationary (albeit slightly) most of the time since the London Upgrade in August 2021.
In brief, it involves burning the base fee per transaction, whereas validators pocket the priority fee; more info here.
This makes the inflation-adjusted annual percentage yield (APR) even more attractive to people who want to invest in this asset class. BNB is a classic example, burning its supply for over six years.
Moreover, even though ~54% of Bitcoin mining energy usage is derived from “sustainable” sources (which I imagine would include varying degrees of renewables and nuclear), some investors still want an alternative, especially owing to its enormous energy (and advanced hardware) mining requirements.
Ethereum’s website claims the protocol’s energy consumption has dropped by ~99.95% since fully migrating to proof-of-stake, i.e., The Merge.
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at Shutterstock
Additional thoughts
Will the market take off once Ethereum ETFs are officially running?
I doubt it. I expect it will take at least a few months for both retail and institutional investors to put vast sums of money into Ethereum to make a meaningful difference.
Despite being the second largest digital asset by circulating market cap, currently valued at over $400 billion, BTC has more than triple this amount invested in the asset ($1.16 trillion at present).
So, to meaningfully change the altcoin’s price, we would need to see a gargantuan amount of money — over $130 billion in ETH — go into the spot Ethereum ETF. As we go into another bull run, this figure will likely need to be higher.
For context, spot Bitcoin ETF fund managers have purchased roughly $77 billion of BTC, representing about 6.6% of the circulating market cap.
The longer these coins persist and continue to grow, the stronger the message to crypto sceptics and haters who still dismiss Bitcoin and Ethereum as pointless concepts (and assets) akin to gambling at a casino or playing poker machines.
While BTC has robust fundamentals and still moves the overall crypto market, ETH arguably plays an even bigger role in shaping the performance of many altcoins nowadays, notably for its related (ERC-20) tokens.
Eventually, we’ll get a massive short squeeze for Bitcoin and Ether, forcing prices to move upward as both assets have dwindling reserve balances. This is to be even more intense for the latter, as over 27% of ETH has been locked up in the protocol. I expect this to increase as people take advantage of available yield and grow institutional interest.
To play devil’s advocate, some will argue that spot ETFs will have negligible influence over the market (in this cycle) and that it is simply following previous post-halving market cycles. Time will tell how much these publicly traded funds sway the crypto market.
In my opinion, these funds won’t impact the asset much in the beginning, but as these grow, there’s a risk that the % of ETH controlled by these fund managers could become high in the coming years, thus impacting decentralisation and its price.
Even with bearish sentiment sweeping through the crypto market over the past week or two, it remains strong, with the overall (circulating) market cap sitting at over $2 trillion, with Bitcoin still accounting for roughly 53% dominance, per CoinMarketCap stats.
When in doubt, zoom out. Look at the market’s performance over the past 12 months rather than fixating on its daily fluctuations.
. Snapshot taken on 5 July 2024 at 07:40 UTC.
In conclusion, there will be a massive breakout sooner or later, and multiple digital assets will eclipse their ATHs, going well beyond the ~$2.85 trillion cap achieved in 2021. A combination of these will get the market roaring once again:
— Bitcoin’s halving and strong fundamentals, i.e., inflation, hash rate, node abundance and distribution, a growing number of unique wallets, etc.
— ETH’s steady supply, upgrades (Dencun in March and the Pectra in Q1 2025), and institutional interest will eventually attract more daily (retail) investors.
— A settlement between the US SEC and Ripple will eventually come, and some sources reporting this could be sooner than expected…but nothing has been publicly mentioned about a confirmed date.
— Ripple’s upcoming USD stablecoin, which I believe will make a significant difference due to the company’s bank partnerships, coupled with faster and much cheaper transactions on XRP Ledger versus Ethereum, which is used by Tether USD (USDT) and USD Coin (USDC) by Circle.
— Ongoing infrastructure improvements to various blockchains, allowing them to successfully cater to a growing user base in the coming years.
Further reading and additional resources
This is a…cryptowithlorenzo.medium.com
You think Bitcoin’s price is too high? Read this.
“Bitcoin is too expensive now at $37,000.”
“I missed the boat on Bitcoin. It’s too late now.”
“The bubble has…cryptowithlorenzo.medium.com
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Disclaimers
• N.B. None of this is financial advice; I am not a financial advisor. You are ultimately responsible for crypto investments, let alone in any asset class.
• The opinions expressed within this piece are my own and might not reflect those behind any news outlet, person, organisation, or otherwise listed here.
• Please do your own research before investing in any crypto assets, staking, NFTs or other products affiliated with this space.
• Information is correct at the time of writing.
• ETH accounts for roughly 25% of my portfolio.
Originally published at https://www.cryptowithlorenzo.com
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