News - ETF's and the Ethereum price: What happens when BlackRock and Fidelity invest 1%

By Luc Vesters

ETF's and the Ethereum price: What happens when BlackRock and Fidelity invest 1%

In recent weeks, applications for spot ETFs for Bitcoin of Wall Street giants fueled positive sentiment in the crypto market. Bitcoin has therefore managed to outperform altcoins and extend its market dominance to currently 51.3 percent. Attention is now increasingly focused on Ethereum. It has been announced that BlackRock and Fidelity are also looking to launch an Ether Spot ETF. This raises several questions:

  • How likely is the adoption of an Ethereum Spot ETF?

  • How big an effect would ETH Spot ETFs have on the Ether price? Especially compared to Bitcoin and BTC Spot ETFs.

  • What opportunities would an ETH Spot ETF create for other altcoins such as Ripple (XRP), Cardano and Solana?

How likely is an Ether Spot ETF?

The Ether spot ETF applications make it clear that BlackRock and Fidelity also want to conquer the altcoin sector. The price of Ether has responded positively to this news and broke through the 2k mark.

There is virtually no doubt that an ETH Spot ETF will be approved if Bitcoin Spot ETFs are allowed. The former is therefore the basic prerequisite for an ETH Spot ETF. If the SEC were to interfere with an ETH Spot ETF after the Bitcoin Spot ETF is approved, it would be under great pressure to answer.

Indeed, the current objections to a Bitcoin Spot ETF are the same as to its Ether counterpart. Among other things, the U.S. authority sees the risk of price manipulation because it has limited confidence in crypto exchanges.

Altcoin rally due to ETF flood?

Fake news about a Ripple (XRP) spot ETF application has already gone around and resulted in a small pump. From an asset manager's perspective, it potentially makes sense to pick up other blockchain protocols in addition to Bitcoin and Ethereum.

For crypto investors actively trading, it may therefore be interesting to consider which coin is next to apply for a spot ETF. After all, a spot ETF promises new inflows of funds and thus rising prices. However, applications are likely to be limited to the largest cryptocurrencies in terms of market capitalization. The hope that BlackRock or Fidelity will submit an ETF application for a currency outside the top 20 in terms of market capitalization should not be taken seriously at this time. Therefore, XRP, Solana and Cardano in particular are likely to be good candidates for further ETF filings.

It can be strongly assumed that asset managers are planning a corresponding altcoin offering, even though they are currently rather reluctant to communicate this. It is possible that BlackRock and the other asset managers want to wait and see what happens with the Bitcoin and Ether spot ETF applications before filing further applications with the U.S. Securities and Exchange Commission.

Why is an Ethereum spot ETF so attractive?

Just as there are many investors who bet solely on Bitcoin, the same is true of Ether. While Bitcoin serves the story of digital gold, Ether is the leading smart contract protocol on which the applications of the future will be built. Therefore, the investment case is completely different.

Therefore, ETFs of both cryptocurrencies would not really compete with each other in terms of inflows. Rather, they cater to different investor interests through different investment cases. Especially since many investors also have both currencies in their portfolios and would therefore buy both spot ETFs.

The possibility of generating strike income with ETH spot ETFs could serve as an additional argument for some investors. Similar to dividend or bond ETFs, variants that pay out income would be conceivable, at least in theory, in addition to a cumulative model. This makes ETH Spot ETFs suitable for different investment styles and could contribute to an alternative portfolio mix in the interest-bearing sector.

Does Ethereum have an ESG advantage over Bitcoin?

There is also the aspect that Bitcoin struggles with its image as a "climate killer." Due to the energy-intensive nature of Bitcoin mining, many people still believe that Bitcoin has a negative impact on the climate.

Since Ethereum's consensus mechanism, Proof-of-Stake, consumes only a fraction of the energy of the Bitcoin network, it is possible to argue that there are certain groups of investors who prefer Ether based on perceived ESG criteria. This is especially true for institutional investors who want to participate in the crypto market but fear objections from customers and employees.

Tesla, for example, was criticized for investing in Bitcoin for failing to meet sustainability standards. As false as these accusations are, they do not exactly motivate public companies or investors to make themselves vulnerable by investing in Bitcoin.

Ether vs Bitcoin: the role of market capitalization

The main question for many Ether investors is how much the price can potentially benefit from spot ETFs. It should be noted that Ether's market capitalization ($240 billion) is about one-third that of Bitcoin ($730 billion). Therefore, a smaller cash inflow would be needed for Ether's price to rise than is the case with Bitcoin.

But because Bitcoin is by far the best-known cryptocurrency and also has by far the greatest interest overall, Ether Spot ETFs are unlikely to be able to attract the same inflow of funds.

BlackRock and Fidelity: These are the amounts involved

As has already been done for Bitcoin, calculations can also be made for Ethereum spot ETFs outlining the impact that fund inflows from BlackRock and Fidelity would have on the ETH price.

While BlackRock, the biggest player in the market, manages about USD 9.5 trillion, the global No. 4, Fidelity, manages USD 4.3 trillion. Although only these two Wall Street players are known to be planning an ETH Spot ETF, it is safe to assume that all other established asset managers would also follow suit if approval were granted.

445 billion US dollars

If we simply add together the total assets under management of the ten largest asset managers for convenience, the total comes to $44.48 trillion. If one percent of the AuM (Assets under Management) of the top ten asset managers flowed into Ether, that would be about $445 billion, far more than the current market capitalization ($240 billion).

As unlikely as this may seem in the short term, it shows the significant effect that spot ETFs can have on price. Even with an allocation of only 0.1 percent by the aforementioned players or their clients, this would represent inflows of nearly 20 percent of the current ETH market capitalization.

Ethereum rate: this is possible with spot ETFs

ETFs usually take a while to reach a certain height. Therefore, it is unlikely that asset managers' AuM (Assets under Management) will be diverted to crypto ETFs overnight. If we stick to the one percent example, it would take a few months for such levels to become realistic.

Given that the market capitalization of Bitcoin, Ether and other crypto is still reasonably manageable, it is reasonable to assume that spot ETFs could lead to significant price effects.

By comparison, with a market capitalization of about $12 trillion, gold is about 17 times more strongly capitalized than Bitcoin and about 50 times more strongly capitalized than Ethereum. So there is still a lot of room for the two largest cryptocurrencies to grow. A successful creation of spot ETFs would mean that Bitcoin and Ether have a good chance of reaching their old all-time highs again within a few months. For Ether, this would mean a price of €4,228 and a market capitalization of around USD 550 billion.

Disclaimer: This article does not offer financial advice and is for informational purposes only. The author and publisher are not responsible for your financial actions based on this information.

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