JPMorgan has predicted an initial negative market reaction for spot ethereum exchange-traded funds (ETFs), expecting lower demand compared to bitcoin ETFs.
The global investment bank also cautions that approximately $1 billion may exit the Grayscale Ethereum Trust, putting downward pressure on ether prices shortly after the launch of spot ethereum ETFs.
JPMorgan’s Analysis on Ethereum ETF Approval
The approval of spot ether exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) has raised expectations for substantial inflows. However, JPMorgan has cautioned that these hopes may be overly optimistic compared to spot bitcoin ETFs. The investment bank’s analysts, led by Nikolaos Panigirtzoglou, managing director and global market strategist, explained in a report on Thursday:
The initial market reaction to the launch of spot ethereum ETFs is likely to be negative … We believe the demand for spot ethereum ETFs would be a fraction of that seen for spot bitcoin.
The JPMorgan analysts outlined several reasons for their cautious outlook. They detailed that Bitcoin’s “first mover advantage” and the recent halving event serve as significant demand catalysts for BTC ETFs, which ETH lacks. Noting that Ethereum’s proof-of-stake mechanism does not provide a comparable demand boost, the analysts emphasized that Bitcoin’s halving event “acted as an additional demand catalyst for spot bitcoin ETFs.”
Additionally, they noted that the exclusion of staking from spot ether ETF filings makes the funds “less attractive compared to platforms that offer staking yield.” Bitcoin’s status as a gold competitor in portfolio allocations further increases its demand over ethereum, primarily seen as a token for applications. Moreover, ether’s lower liquidity makes it less appealing to hedge and quant funds, JPMorgan detailed.
JPMorgan’s Forecast for Ethereum ETF Launch
The investment bank’s analysts expect net inflows of $1 billion to $3 billion for 2024 if spot ethereum ETFs launch by the end of the year. They noted that inflows could potentially triple if staking is included in the ETFs, contingent upon congressional action to classify ether as a commodity. However, they cautioned that similar to Grayscale’s bitcoin trust, Ethereum ETFs might experience outflows once trading begins. They wrote:
“We expect around $1 billion to exit the Grayscale Ethereum Trust as speculative investors, who previously bought the ETHE in anticipation of it being converted to ETF, are likely to take profit, thus exerting downward pressure on ethereum prices soon after the launch of spot ethereum ETFs.”
JPMorgan recently noted that the SEC is unlikely to approve spot crypto ETFs beyond bitcoin and ethereum. Although forms 19b-4 for spot ethereum ETFs have been approved, the SEC has not definitively classified ether as a commodity. SEC Chairman Gary Gensler has consistently maintained that most crypto tokens, with the exception of bitcoin, are securities, without explicitly confirming ether’s status. A recent court document disclosed that the SEC launched a formal investigation into ether as a potential security last year.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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