A spot exchange-traded fund (ETF) is an investment fund that builds a portfolio of digital assets and then issues its own securities tied to the same assets. Instead of independently dealing with crypto exchanges and wallets, an investor can buy Bitcoin ETF shares through regular brokerage accounts. It is the convenience of access that is expected to bridge the gap between the traditional financial and crypto markets.
This financial instrument turned out to be in great demand. Since the Bitcoin ETF appearance, investors have been looking forward to new cryptocurrency ETFs to hit the market.
Current state of crypto ETFs
On May 23, the SEC approved Forms 19b-4 for the ETH-ETF, which includes offers from BlackRock, Fidelity, Grayscale, and others. On July 23, 2024, trading in spot Ethereum-ETFs started in the United States.
According to the results of the first day, as noted by Bloomberg analyst James Seyffart, the net inflow to spot Ether-ETF exceeded $106 million. In his opinion, it was quite a good startt. The best result (+ $266.5 million) was demonstrated by ETHA from BlackRock.
Initially, analysts expected spot ETH ETFs to repeat the success of a similar BTC-based tool. However, this time the market reaction was sluggish.
One of the main reasons for indifference may be the lack of staking in exchange-traded funds based on Ethereum. ETH holders can usually make 3% to 5% per annum from this. Investors in ETFs, deprived of this opportunity due to regulatory restrictions, were at a disadvantage.
The picture was also spoiled by the new Grayscale crypto fund with very high commissions. The company transformed its Ethereum Trust into a spot fund. Earlier, Grayscale similarly transformed its Bitcoin Trust into a spot Bitcoin ETF. The conversion triggered a massive outflow of funds from the instrument, putting BTC under pressure.
Remembering the correction of Bitcoin against the background of the start of trading in spot BTC-ETF in the United States, many participants hastened to record a profit. As a result, the new ETH fund faced an outflow that harmed general statistics. Over the first day, over $484 million was withdrawn from the instrument.
This behavior of representatives of the crypto industry put additional pressure on Ether and the coin dropped below $2,465.
Bitcoin is also undergoing a correction. The inflow of capital into spot exchange-traded funds (ETFs) based on BTC has grown sharply, but this did not save the coin from falling. Bitcoin in terms of capitalization tested lows in the region of $50,000 and at the time of publication stabilized at $55,000. Such movements are directly related to the current actions of the US government.
Regulatory landscape
Analysts believe that the expected interest rate cut in the United States will be able to return the top positions of digital assets.
Last week, US Federal Reserve Chairman Jerome Powell advocated an interest rate cut this year. Then the probability that the department would still cut the rate in September was only 11%.
After the American authorities transferred about 28,000 BTC confiscated from the Silk Road dark web marketplace in 2022 and announced their desire to create a strategic reserve of Bitcoins, a massive sale began. This gave rise to the opinion that an emergency rate cut was possible.
Now with the probability of a Fed interest rate cut of 50 basis points in September, the market estimates 75.5%. However, in the current crypto market conditions, many economists believe that such a move is unlikely.
In this situation, experts advise thinking about investments in the long term and ignoring short-term ups and downs.
Milestones in crypto ETF approvals
Let's refresh some steps that have already been taken to adopt spot ETFs to date.
On January 10, the US Securities and Exchange Commission (SEC) recognized valid applications from 11 funds. Their Bitcoin-linked shares have become available on the New York Stock Exchange (three funds), Nasdaq (two funds), and the Chicago Board of Options (CBOE).
The approval from the SEC followed years of postponements and outright denials in numerous attempts to launch spot Bitcoin ETFs. For the first time, an application for the opening of such a fund was submitted back in 2013. Interestingly, the green light was given just a few months after the SEC suffered a resounding defeat in court in the Grayscale transformation of its Grayscale Bitcoin Trust (GBTC) fund, worth about $26 billion, into a spot Bitcoin ETF.
According to CoinMarketCap, in just 6 months after launch, US spot Bitcoin ETFs have accumulated over 880,000 BTC. And 13 of the top 25 American hedge funds have invested in BTC-ETFs.
Hong Kong allows ETF launch in Bitcoin and Ethereum
The Hong Kong Securities and Futures Commission (SFC) has approved the launch of spot exchange-traded funds (ETFs) related to Bitcoin and Ethereum cryptocurrencies. According to CNBC, three companies received permission from the regulator to trade at once.
SFC permission to launch ETFs for Bitcoin and Ether was received by ChinaAMC, Harvest Global and Bosera International. Despite receiving permission from the regulator, the timing of the launch of ETF funds was not announced.
Cryptocurrency trading has actually been banned in mainland China since this segment was heavily regulated by the authorities in 2021. However, Hong Kong aims to be one of the first places to launch spot ETFs based on Bitcoin and Ether.
Possibilities for the next crypto ETF
SOL-ETF
VanEck believes that Solana's decentralized nature and utility as a commodity qualify it for consideration as an ETF asset. The company applied for Solana-based spot ETFs in late June and early July. However, the SEC hasn’t yet begun reviewing them.
Despite the current regulatory situation in the United States where the futures crypto market is usually a touchstone necessary for approving spot products, VanEck CEO Matthew Siegel expressed optimism about the future SEC decision.
The head of the firm admitted that the country's financial departments are focused on a large market that guarantees transparency and price formation. On the other hand, the businessman said that another chairman of the US Securities and Exchange Commission SEC is likely to be required to implement their attempt.
VanEck was also followed by 21Shares. Franklin Templeton expressed support for Solana too.
XRP-ETF
The next contender for a slice of the pie in the crypto ETF realm is Ripple.
Ripple CEO Brad Garlinghouse predicts an XRP spot ETF by 2025. Its forecast indicates a significant development in the crypto market, especially XRP.
But there are no applications from issuers yet, ETFs based on XRP are only in the plans. The problem is the ongoing litigation between the SEC and Ripple Labs. The Securities Commission accuses the company of selling XRP as an unregistered security.
Experts predict an increase in liquidity and stability of XRP after its implementation in investment funds. But we must remember that this is only a forecast, and the real development of events may differ under the influence of various factors of the crypto market.
Other possible crypto ETFs are actively discussed on the network: ADA, DOT, NEAR - and many more tokens appear in the discussions. But for now, these are just speculations and desires of individual traders.
Predictions and market trends
Some members of the crypto community believe that Ether will be able to defeat the pressure of Grayscale and please its investors in 2024. For example, the Doctor Profit trader supported Ethereum's positive outlook. He is waiting for ETH to enter parabolic growth. In his opinion, the small capitalization of Ethereum in comparison with Bitcoin will allow the cryptocurrency to surpass the results of BTC.
Doctor Profit believes that within a year after the launch of spot ETH-ETFs in the United States, Ether will be able to reach $10-14 thousand.
The trader's opinion was supported by many other crypto bloggers. For example, tech analyst Yoddha is also waiting for the ETH rally. At the same time, unlike Doctor Profit, he believes that a positive impulse can bring Ether to higher levels. Its Ethereum forecast does not exclude ETH at $17,000 until the end of the year.
Conclusion
Overall, the future of spot cryptocurrency ETFs looks promising. New products covering a wide range of crypto are expected to emerge in the coming years, attracting more investors and driving the growth and development of the market.
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