Ethereum, a leading cryptocurrency and platform for decentralized applications, is expected to make significant waves in the financial market as exchange-traded products (ETPs) tethered to it are predicted to attract a substantial $15 billion in net inflows within the first 18 months of their launch. This prediction comes from the Chief Investment Officer (CIO) Matt Hougan of Bitwise, a prominent name in the asset management sector specializing in cryptocurrency.
As the cryptocurrency market continues to mature, investors are eyeing Ethereum ETPs with keen interest, especially in the wake of the success witnessed in Bitcoin ETPs. Bitcoin-based ETPs in the United States have captivated around $56 billion from investors. Bitwise’s CIO projects that this number will swell to more than $100 billion by the end of 2025. This indicates a growing trend among investors to diversify their cryptocurrency investment portfolios beyond just Bitcoin.
Ethereum’s market capitalization stands at a robust $432 billion, serving as a testament to its potential for further asset inflow. The Bitwise report underscores that to match Bitcoin ETPs’ standing, approximately $35 billion would be needed. Notably, the impending transformation of the Grayscale Ethereum Trust (NYSE: ETHE) into an ETP on its launch day will infuse an additional $10 billion in assets. Hence, to achieve parity with Bitcoin ETPs, an inflow of $25 billion will be requisite.
Despite this bright outlook, Ethereum ETPs are marginally lagging in performance relative to their market cap weight. At the moment, they make up about 22-23% of the total assets under management, in contrast to their 26% market cap weighting.
Acknowledging variables such as the “carry trade,” Hougan has tempered his forecast from $25 billion down to $18 billion for Ethereum ETPs, which excludes assets from Grayscale’s trust. The carry trade involves an investment strategy where investors buy spot Bitcoin ETPs and sell Bitcoin futures contracts against the spot position, aiming to capitalize on the premium between futures and spot prices.
Factors, including the unprofitability of the carry trade for Ethereum ETPs, particularly for institutional investors, have contributed to Bitwise’s adjusted estimate. After considering these factors, the anticipated net inflows for Ethereum ETPs are now estimated to reach $15 billion.
The cryptocurrency investment landscape is witnessing an evolving dynamic, with Ethereum ETPs poised to become a major attraction for investors. As the market adapts and new financial products linked to cryptocurrencies emerge, a reallocation of investment from traditional assets to these novel instruments is expected to continue, with Ethereum ETPs playing a significant role in this capital shift.
