Bitcoin price is attempting to reach $66,500, and we see the final filings for the ETH ETF. Tomorrow will be the first day ETH ETFs start trading, and initial volume data will be available. Will we see a sell-the-news event similar to the BTC ETF case? What does the Kaiko report tell us?
Will Cryptocurrencies Drop?
No sell-the-news event was expected for the BTC ETF because long-term inflows were anticipated to positively impact the price continuously. Apart from a short-term decline, net inflows are strengthening, and the ETF channel still supports BTC. A similar scenario for ETH would not be surprising. The Kaiko report published today addresses the ETF topic.
Grayscale will convert its ETHE trust into a spot ETF, seeding it with $1 billion from the old fund and starting a mini trust. A 2.5% fee was announced for ETHE, indicating that we might face the same scenario as the GBTC ETF (initial rapid sales).
“Similar to BTC ETF launches, most issuers preferred to launch with fee waivers. Fee waivers vary between six months to a year or until assets reach between $500 million to $2.5 billion. The fee war indicates how competitive the market is. Issuers operate within narrow margins, which may explain Ark Invest’s decision to withdraw from the ETH ETF race.”
ETHE is Risky
We have explained the difference between a trust and an ETF many times. An ETF has unit prices divided by the net asset value on a one-to-one basis. However, shares divided by the net asset value in a trust are generally not equal, and we have seen these trade at a negative premium in the two Grayscale trusts named GBTC and ETHE. The Kaiko report states;
“The asset manager’s decision to keep the ETHE fee at 2.5% could lead to exits from the fund, reflecting the performance of GBTC after it was converted to a spot BTC ETF. ETHE’s discount to net asset value widened between February and May as approval hopes diminished, but it has closed in the past few weeks. The narrowing discount indicates that investors bought ETHE below nominal value and will redeem these shares at NAV price during the conversion to make a profit.”
Will Cai from Kaiko said;
“The launch of futures-based ETH ETFs in the US late last year faced insufficient demand, and all eyes are on the spot ETFs with high hopes for rapid asset accumulation. Although a full demand picture will not emerge for several months, the ETH price may be sensitive to initial inflow figures in the early days.”
If demand and volumes are strong, this could lead to an altcoin rally led by ETH, with the failure of futures being forgotten. However, looking at today and tomorrow, we must remember that a large crowd is ready to sell ETHE with very attractive profit margins. These could cause strong net outflow days in spot ETH ETFs due to ETHE exits and negatively impact the markets. Or, because everyone expects this scenario, we might see the opposite happen?
