Bankless: Will ETFs drive new ETH demand?

Author: Jack Inabinet, Bankless; Compiler: Wuzhu, Golden Finance

After a difficult and unnecessarily lengthy approval process, spot Ethereum ETFs are finally trading on traditional stock exchanges!

For years, cryptocurrencies have eagerly awaited the launch of these products, and their arrival is expected to provide the world's largest asset managers with direct economic incentives to drive Ethereum's development, catalyze unprecedented capital inflows into ETH, and lead to mainstream acceptance of on-chain activities.

Today, let's discuss what the future holds for Ethereum's most watched metric - price - in the post-ETF era?

Looking Ahead

Spot cryptocurrency ETFs have had limited performance, but many expect spot ETFs to be as good for ETH as they have been for BTC.

The newly launched spot BTC ETF has been one of the hottest financial products this year, absorbing $18.6 billion in outflows from Grayscale’s GBTC and amassing an additional $17 billion in AUM.

The relative success of spot BTC ETFs underscores this, with BlackRock’s IBIT alone seeing more inflows this year than Invesco’s retail-friendly QQQ Nasdaq 100 Fund, ranking fourth among ETFs by year-to-date inflows.

While the absolute dollar value of spot BTC ETF inflows is indeed impressive, it is clear that limited inflows have come from the types of net new buyers these products are designed to attract, such as pension funds.

While spot BTC ETFs make crypto investing directly accessible to every major financial institution, demand for these products from institutional investors has been more limited.

Only investment advisors (who allocate private capital that would otherwise be used to purchase BTC in alternative markets) and hedge funds (entities that are less likely to take directional BTC exposure) have been notable purchasers in non-isolated circumstances.

While the BTC price did rise in dollar terms following the ETF, it also failed to keep pace with Wall Street’s best-performing AI stocks, only barely keeping pace with lackluster names like General Electric, GoDaddy, Walmart, and Progressive Insurance.

Spot ETFs did not magically drive new capital to buy cryptocurrencies; on the contrary, the funds flowing into BTC ETFs mainly came from the market's strong risk appetite sentiment. Unfortunately, even with the emergence of this highly anticipated catalyst, BTC failed to convincingly break through and maintain its historical highs.

With BTC peaking more than four months ago and global economic data continuing to weaken, it is questionable whether broader market tailwinds can continue to support high-risk crypto assets.

Furthermore, given the many existing ways that sophisticated investors can buy ETH exposure using futures and trust-based products through TradFi, it is unlikely that there is a large amount of capital waiting on the sidelines to buy slightly differentiated spot products.

A Milestone to Celebrate

A spot ETF was the ultimate catalyst to spark investor enthusiasm for ETH and permissionless blockchains as a whole, but with final approval, Ethereum will increasingly be judged on its current performance as enthusiasm for its murky future fades.

We have reached a critical juncture for Ethereum; adoption needs to accelerate in order for the ecosystem to replace the traditional financial system. Fortunately, ETF approvals should put Ethereum in the spotlight in the coming months as issuers promote their products and investors seek information about the blockchain that aims to replace the traditional financial system.

While the mainstream has yet to explore the hidden on-chain scene, influential figures in the financial world such as BlackRock CEO Larry Fink touting the bull case for tokenization and Ethereum may implore non-crypto natives to interact with blockchain technology firsthand.

Once the masses begin to realize the vast improvements blockchain brings over the outdated financial system, on-chain applications will grow exponentially as more individuals begin to store wealth in digital assets and leverage blockchain technology, positively impacting prices and the fundamental bull market for cryptocurrencies!

While Bitcoin's simple digital gold narrative has failed to inspire mainstream excitement about cryptocurrencies and push token valuations to all-time highs, the emergence of bullish sentiment on Ethereum will drive on-chain applications and allow investors to gain a deeper understanding of the industry. ETFs give traditional financial giants a reason to be excited about cryptocurrencies and provide Ethereum with its best chance to be understood, but the lack of tangible results this time could have dire consequences, marking the beginning of Ethereum’s decline and undermining the credibility of the entire cryptocurrency revolution.