The Second Largest Cryptocurrency Is Set to Premiere as an ETF as Soon as This Summer
Just five months after the first spot Bitcoin ETFs were approved by the SEC in January, the biggest asset management firms are pushing to do the same with Ethereum. The second-largest cryptocurrency by market capitalization is on track to become listed on the US stock exchanges in what is expected to be a second monumental victory of the cryptocurrency market. These listings will grant billions of investor dollars under management exposure to the lucrative Ether token. Unbridled optimism is in the air, but can it continue forever?
What Is Ethereum?
Drafted as a concept in 2013 and finally brought to life in 2014, Ethereum is a digital technology which seeks to expand the functionality of Bitcoin's blockchain. Blockchain is the framework—the set of systems—used to facilitate the decentralized transactions Bitcoin was created for. If Bitcoin is a train, then blockchain is the network of railroad tracks it travels on.
Ethereum's ambition is to expand this groundwork to more areas of society than just digital currency exchange. It is the platform on which decentralized applications are built. These are innovative ways to use this same blockchain technology in different fields where a central governing body is needed to verify an event.
If Bitcoin's blockchain is used to verify that John has transferred 1 BTC to Sarah, then Ethereum's can be used for more complex tasks known as smart contracts. For example, it can verify if I have paid my electricity bill on time. If I have, it will let me keep my lights on, but if I haven't, it will cut my power automatically, without a middleman having to check manually if that has happened.
While this is a very simplistic explanation of the concept, there are thousands of decentralized applications that use such contracts to automate and execute tasks in work and business with 100% certainty and without the possibility of tampering. This 'trustless' system can eliminate the need for a mediating party in fields such as finance, where people can lend and borrow money directly to and from each other with full confidence, or in political elections where votes can be tallied without the possibility of anyone rigging them.
Because of the breadth of its usage, Ethereum has positioned itself as the biggest cryptocurrency in the group known as the 'altcoins', which comprises the largest market capitalization cryptos excluding Bitcoin.
The Mass Adoption Reality
The use of cryptocurrency as a means of value exchange is most certainly a desirable characteristic of many of the digital assets but it has not exactly been a universal use-case since 2009. In fact, the value of crypto is contingent exclusively on physical real-world fiat currencies. While you can benchmark the value of, say, Ethereum to Bitcoin successfully, it might tell you little about their inherent value unless you also pin them against the US dollar.
This inherent property of crypto is not novel though. It would be hard to value other assets like gold or wheat in anything other than paper money nowadays. Unlike gold, however, some cryptos do contend to become either currencies in their own right or stores of value (assets). Those which are designed to be transacted with can most certainly benefit from mass adoption by the broader society.
This is because currency as we know it derives its value from a central governing institution guaranteeing its stability. Our trust in that system and its legal enforcement allows us to accept the South African Rand or the US Dollar at face value, knowing it is legal tender accepted by everyone as representation of value.
Thus, mass adoption of cryptocurrencies is a critical priority for their legitimization in the eyes of the people. While many of them have use-cases that undoubtedly bring added value, if there is no consensus that they are worth anything, they aren't.
For the past fifteen years, cryptocurrencies have been a fringe investment frowned upon by many a financier. Considering they were for a long time a niche technological innovation with dubious potential as a financial instrument, they have recently crash landed into the collective gaze.
The enormity of the eleven spot Bitcoin ETFs' legislative and financial significance cannot be understated. January 11th was by all definitions a pivotal day for crypto everywhere as the largest cryptocurrency in the world received its first public recognition in the eyes of the US regulator – the SEC.
This is precisely the leap forward crypto proponents were hoping for. That day marked the beginning of one of the largest Bitcoin accumulation periods in history with asset managers like Blackrock (NYSE:BLK) scooping up hundreds of thousands of BTC to back their ETF with.
It took just two months following the ETF approval for the grandfather crypto to break its previous all-time high level.
From a Regulation Perspective
The Bitcoin ETF was a long time in the making. As a matter of fact, Grayscale had created a Bitcoin Trust all the way back in 2013, providing a roundabout way for investors to get exposure to the cryptocurrency without actually owning it. It wasn't until January of this year that it came to fruition in its more easily tradeable form.
This time around thought, the SEC, and the companies offering the ETH ETF, are moving much faster. The regulator approved eight ETFs on May 23, with their deadlines lined up through August. Bloomberg's chief ETF analyst has moved up the launch date prediction of the bundle to July 2, just days away.
That's not to say that regulators are necessarily going easy on the applicants, but their vehement opposition just a few months prior was crushed as pressure from Congress came in very persuasively.
The Growing Lobby
This new ETH ETF is also coming in for a much softer landing, now that cryptocurrency PACs have more or less paved the way for future crypto law and regulation. Lobbying efforts in the US legislative system, while not on par with traditional banking, are making a dent – the most disruptive force in both banking and technology is finding its way on Wall Street.
Hundreds of millions of dollars in 'war chests' have been accumulated by crypto-supporting Political Action Committees. This money is essentially used as donations to US Senators, House Representatives and even president elects, and it's completely legal.
The effectiveness of these contributions is evident. Nearly all Democrats in the Senate are against crypto, while nearly all of the Republicans are for it. The supposed Republican nominee for the 2024 Presidential Election, Donald Trump, recently did a U-turn in his stance on crypto himself. Not only is he not opposing it, but he also overtly expressed his dedication to having the US become the crypto hub of the world.
How Is That a Big Deal?
Investing in a securitized version of Ethereum has been possible since 2017 when Grayscale first introduced their Ethereum Trust. It is an indirect way of investing in a trust fund which owns the underlying asset. This is analogous to their Bitcoin Trust which was then transformed into the Bitcoin Trust ETF when it was approved by the SEC.
Further down the line, other financial solutions like Exchange-Traded Notes (ETNs) and other Exchange-Traded Products (ETPs) were created to satisfy demand for the digital asset, but they all come with some limitations. They either work as a trust which acts as a manager for investor capital or as a debt instrument, which doesn't provide ownership of the asset but promises paying out profits at maturation.
Exchange-Traded Funds, for comparison, guarantee underlying holdings of the tracked instrument and are traded as shares on the stock market, which make them more accessible to both institutional and retail traders.
Additionally, Ethereum would get a degree of social proof after coming under the regulatory umbrella of the SEC, normalizing and validating it for the broader society. This effect is further amplified given it comes shortly after an arguably more controversial precedent.
The Ethereum blockchain houses some 5,000 tokens and is the foundation upon which the NFT ecosystem is built. What's more interesting is that two of the largest stablecoins, which are digital tokens pegged to the US Dollar, are built on the network too.
Needless to say, high volatility is expected following this decision, with many anticipating comparable growth in the asset's price to that of Bitcoin's after its approval. In comparison to Bitcoin, whose blockchain is rather rigid and inhospitable for application development, the Ethereum system is a fertile environment for the development of many solutions with real-world applications. It's possible that its arrival on Wall Street will stir interest in it from more than just the financial realm.
Price Targets
- Standard Chartered have forecast a potential $8,000 price tag per ETH by the end of the year.
- Bernstein are proposing a potential jump of 75% post-approval.
- VanEck analysts have a base-case scenario of ETH reaching $11,848.62 by 2030 and a bullish prediction of $51,006.28.
Technical Analysis of Ethereum
Key Levels
- $3,893 – Daily Key Level and near-term resistance
- $3,553 – Monthly Key Level and resistance
- $3,060 – Monthly Key Level and support
- $2,868 – Daily Key Level and strong support
Analysis of EMA (Exponential Moving Averages):
- The price of Ethereum is, at the time of writing, above the 200-day and 100-day moving averages, indicating bullish momentum and strength in the upward trend.
- The price has recently found support at the 50-day moving average, suggesting that it may continue to hold above this level, reinforcing the support there.
Analysis of MACD (Moving Average Convergence/Divergence):
- On June 3 the MACD line crossed the signal line from above, indicating bearish pressure.
- On June 18 it also crossed the zero line from above, which is another bearish signal.
- A bullish signal can be expected once the MACD turns up from below the zero line and even more so when it crosses it from below.
Fair Value Gap:
- On the daily chart, a fair value gap can be observed in the price range of $3,100 - $3,600 (green rectangle), which indicates that dominant buying pressure on the 20th of May propelled the price higher than the consensus at the time due to a disbalance in liquidity, meaning it might potentially retrace back to a lower level, as it already has indicated.