As part of the significant development of the cryptocurrency market, asset managers are eagerly preparing to launch fresh Ethereum spot ETFs in anticipation of approval from the US Securities and Exchange Commission (SEC).
Bitwise Chief Investment Officer (CIO) Matt Hougan weighed in on the potential of these ETFs, anticipating a significant inflow of funds into the regulated market within the first months of trading.
Market data suggests demand for Ethereum spot ETFs is $15 billion
Hougan projections are based on an in-depth analysis of available data. He emphasizes that there is no need for speculation when estimating demand for spot Ethereum ETFs. Instead, Hougan points to existing market data to support his forecast of $15 billion in net inflows over the initial 18-month period.
To arrive at these estimates, Hougan compares relative market capitalization Bitcoin (BTC) and Ethereum (ETH). As a starting point, it expects investors to allocate funds to Bitcoin and Ethereum exchange-traded products (ETPs) roughly in proportion to their market capitalizations.
Bitcoin’s market capitalization is currently $1,266 billion, representing 74% of the combined market, while Ethereum’s market capitalization is $432 billion, representing 26% of the combined market.
Given that U.S. investors have already invested approximately $56 billion in spot Bitcoin ETPs, Hougan predicts they will reach $100 billion or more by the end of 2025 as these ETFs mature and gain approval on leading platforms such as Morgan Stanley and Merrill Lynch.
Using this $100 billion benchmark, he suggests that spot Ethereum ETFs would need to attract $35 billion in assets to reach parity, which he believes will take about 18 months.
Hougan, however, admits that actual inflows may vary due to various factors. For example, Ethereum trust in grayscale The platform (ETHE) is expected to be converted into an ETP on launch day, bringing in assets worth $10 billion. Taking this into account, the estimated net inflow to achieve parity would be approximately $25 billion.
Analysis of international ETF markets
To confirm his estimate, Hougan looks to international ETF markets, particularly Europe and Canada, which already offer Bitcoin and Ethereum ETFs.
According to Hougan, the asset split between the two cryptocurrencies in these markets is similar, with Bitcoin ETPs accounting for approximately 78% and Ethereum ETPs accounting for approximately 22% of the total assets under management (AUM). This is an equation with market capitalization the failures confirm Hougan’s earlier estimates.
Hougan also considers the potential impact of the carry trade on the Bitcoin and Ethereum ETP markets. While a significant portion of Bitcoin ETP flows in the U.S. are tied to the carry trade strategy, he emphasizes that carrying trades in Ethereum ETPs are not profitable for institutions.
To maintain a conservative estimate, Hougan removes $10 billion in cryptocurrency trading AUM when sizing the Bitcoin market, leading to a revised estimate of $15 billion in net inflows for Ethereum ETP.
Overall, Hougan believes that while there are several factors and potential adjustments to the model to consider, a reasonable forecast is to assume that net fresh demand for spot Ethereum ETFs over the next 18 months will be $15 billion.
At the time of writing, ETH is trading at $3,405, up almost 3% in the last 24 hours after hitting a low of $3,230 on Monday.
Featured image from DALL-E, chart from TradingView.com
