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Joseph Lubin, co-founder of Ethereum and CEO of blockchain technology firm Consensys, stated that the U.S. Securities and Exchange Commission’s (SEC) potential approval of spot Ethereum ETFs could lead to significant supply constraints on ETH. This situation is anticipated to be a “turning point” for Ethereum.
Ethereum Differs from Bitcoin Due to Supply Dynamics
Lubin predicts that the approval of spot Ethereum ETFs will trigger significant institutional demand. Considering that many institutions began their crypto investments with spot Bitcoin ETFs, he noted that Ethereum would naturally be the next significant asset for diversification.
Lubin mentioned that these ETFs would create “quite a large pent-up demand to buy Ethereum.” However, he also emphasized that Ethereum’s supply dynamics are significantly different from Bitcoin’s.
Less Ethereum Will Be Available in the Market
An important factor distinguishing Ethereum from Bitcoin in the context of ETF creation is the way the assets are used. According to on-chain data, more than 27% of Ethereum is staked in various protocols on the Ethereum network. These funds are locked in contracts, contributing to the network’s security and operation. Therefore, they are not available for trading in the market.
Lubin said, “A large portion of Ethereum is used in the core protocol, DeFi systems, or DAOs.” This structural difference means there will be less Ethereum available in the market for ETF providers to purchase and allocate new ETF shares.
In August 2021, the Ethereum network introduced a burn mechanism with EIP 1559, where a portion of transaction fees is permanently removed from circulation. This deflationary feature was designed to balance Ethereum’s supply increase and gradually increase scarcity over time. As network activity increases, especially with institutional interest in Ethereum through ETFs, this burn mechanism will gradually reduce the existing supply, potentially creating a supply shortage. Lubin said, “This could be a very significant turning point.”
Ethereum Price Target
The impact of an approved spot Ethereum ETF on the market could be significant. Crypto analyst Miles Deutscher predicts that Ethereum could see a price increase similar to Bitcoin’s following its own ETF approval.
According to Deutscher’s analysis, BTC gained 75% in value within 63 days after the spot ETF was approved. If ETH follows a similar trend, it could reach $6,446 by July 23.
