Thomas Fahrer, co-founder of Apollo, a company focused on Bitcoin adoption, issued a stark warning about potential market dynamics following the approval of spot Ethereum ETFs. As the market awaits this recent development, Fahrer suggests that the transition may not be polished for Ethereum.

“The Grayscale Ethereum Trust was founded in 2017 and raised most of its $9 billion in ETH long before it launched stakes. These funds will now be released. Expect a bloodbath. It will speed up ETH -> BTC trading. Hold me accountable if I’m wrong. But I doubt it” – Fahrer decided via social media platform X.

Ethereum ETF Spot – Sell News Event?

The imminent approval of Ethereum spot ETFs, similar to the earlier launch of Bitcoin spot ETFs this year, is expected to result in the conversion of $9 billion (approximately 2.94 million ETH) locked in Grayscale’s Ethereum Trust (ETHE) into one such an ETF. Historical precedent with Bitcoin suggests potential volatility; following the approval of Bitcoin spot ETFs, Bitcoin experienced a more than 20% decline in value in 12 days amid significant sell-offs following similar conversions.

One of the main reasons why the approval of the BTC spot ETF turned out to be a sell-news event was Grayscale’s transition from Ethereum Trust to spot ETF. So far, Grayscale’s Bitcoin Trust (GBTC) has seen an outflow of over 50% of its BTC holdings. The ETHE investment can be strengthened by the fact that ETH staking is a lucrative option to gain additional profit.

Currently, Grayscale holds over $9 billion in closed Ethereum, which cannot be sold or traded until the ETF goes live. If approval is granted, this vast amount of Ethereum will suddenly become liquid, potentially leading to significant market sell-offs if initial demand does not match the outflows from Grayscale’s recent ETF.

Julio Moreno, head of research at CryptoQuant, highlighted a critical market indicator that may suggest that the market has already started to respond. “The market appears to have already priced in the approval of an Ethereum spot ETF. Grayscale’s ETHE discount on ETH has decreased significantly over the last few days. The same thing happened between GBTC and Bitcoin as the approval of the Bitcoin Spot ETF was approaching,” Moreno noted via X.

While the short-term impact may reflect the turbulent times that occurred during the launch of the Bitcoin ETF, the longer-term implications for Ethereum may be different. Observers note that despite initial declines in Bitcoin’s valuation following the introduction of the ETF, the introduction of the spot ETF ultimately proved beneficial, leading to greater market acceptance and price increases.

“BTC gained 75% in 63 days after spot ETF approval. If ETH follows the same trend (if approved), it will rise to $6,446 by July 23,” noted cryptocurrency analyst Miles Deutscher.

At the time of publication, the price of ETH was $3,676.

Featured image created with DALL·E, chart from TradingView.com